BRUSSELS (MNI) – Interest rates are not the best way to
constrain booming asset prices, although they are not completely
ineffective either, Riksbank Deputy Governor Lars Nyberg said on
Wednesday.
Rising house prices and the easy availability of credit in Sweden
have prompted some to worry that an uncontrollable bubble could be
emerging.
“The repo rate is not the most effective weapon for trying to
prevent or alleviate an imbalance in, for instance, the property market,
but this does not mean it is completely ineffective,” Nyberg said,
according to the text of a speech given at the Swedish Investment Fund
Association.
“We must become better at analysing financial conditions and not
least at capturing variables such as house prices and credit growth in
our forecasts. And this is something we are working hard to achieve,” he
said.
Nyberg acknowledged that “Swedish house prices have grown
surprisingly strongly during the crisis, and also during the years prior
to the crisis.”
“It is not surprising that eyebrows may be raised when house prices
are rising and bank lending to households is increasing fairly
substantially, at the same time as unemployment is still high and growth
has not yet begun to pick up,” he said.
The central banker said these rising house prices weren’t a concern
in the short term, but that they weren’t sustainable in the longer term.
“The reason I do not believe developments to be a problem right now
is that there are nevertheless reasonable explanations for the price
increases,” he said.
“I am still convinced that flexible inflation targeting is the best
monetary policy solution for Sweden,” Nyberg concluded.
The Swedish central bank held interest rates at 0.25% in April but
has said it will begin raising rates in July or September.
–Brussels: 0032 487 (0) 32 803 665, echarlton@marketnews.com
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