Erik Thedéen on monetary policy in 2023: The Riksbank’s policy rate rises contributed to lower inflation
“The period we have been through saw the highest inflation since the early 1990s, and it has required more rate rises than we initially estimated to handle it. Over the year, inflation fell by 8 percentage points and it now appears to be back close to the target. Low and stable inflation helps to create the conditions for a favourable development of the economy in the long run.” This is what Governor Erik Thedéen said today when the Executive Board attended a hearing by the Riksdag Committee on Finance about monetary policy in 2023.
Date: 28/05/2024 09:00
Speaker: Governor Erik Thedéen
Place: Andrakammarsalen, entrance from Riksplan, Stockholm
Erik Thedéen, governor.
High inflation in the first part of the year – gradual rate rises
Inflation excluding volatile energy prices was significantly higher than expected in the first half of the year. In addition, the krona continued to weaken, which contributed to the uncertainty over inflation prospects. At the same time, rapid cost increases and a strong recovery in the Swedish economy following the pandemic appear to have created the conditions for companies to raise their prices faster and more than before.
“To ensure that inflation would fall, we needed to raise the policy rate more than we had expected at the beginning of the year. But we could do this in more gradual steps.”
The purpose of the rate rises has been to bring inflation back to target within a reasonable time, without slowing the economy unnecessarily. Some parts of the Swedish economy – such as housing investment and household consumption – were significantly affected by high inflation and higher interest rates. But the real economy was surprisingly strong during the year, not least with regard to the labour market," said Mr Thedéen.
The inflation target seems to have passed the test
“Towards the end of 2023, we were could conclude that the inflation outlook was improving. Consumer prices were rising at a slower pace and companies had scaled down their plans to raise prices. This meant that at our monetary policy meeting in Jönköping in November, we could leave the policy rate unchanged at 4 per cent."
Despite double-digit inflation, long-term inflation expectations among economic agents remained well anchored at 2 per cent. This signals confidence in the inflation target," said Mr Thedéen.
“We have been through a period with the highest inflation since the inflation target was introduced, which has been tough for many households and companies. Although there is still a lot of uncertainty ahead, inflation targeting seems to have passed the test and we are heading towards low and stable inflation again. This creates the conditions for favourable economic developments in the long run. We note that in their report the evaluators consider that monetary policy in 2023 was well-balanced.”
ABOUT the Committee on Finance hearing
The Riksbank's Account of Monetary Policy in 2023 was commented on by Professor John Hassler, Professor Per Krusell and Professor Roine Vestman, who were commissioned by the Riksdag Committee on Finance to evaluate the monetary policy conducted in 2023. The Executive Board of the Riksbank and the evaluators were then questioned by the members of the Committee.
Every year, the Riksdag Committee on Finance examines and assesses the monetary policy conducted by the Riksbank during the immediately preceding year. The Riksbank compiles and publishes material for this assessment in a document entitled Account of monetary policy. The Committee has commissioned the Center for Monetary Policy and Financial Stability (CeMoF) at Stockholm University to evaluate the Riksbank’s monetary policy in 2023. The report also forms a basis for the Riksdag Committee on Finance’s annual evaluation of the Riksbank’s fulfilment of its monetary policy objectives.