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Swedish CB Should Factor in Wider Economy, Government Says

STOCKHOLM, May 28 (Reuters) - Sweden’s government said on Friday the central bank should factor economic developments as well as its main target of 2% inflation into monetary policy as it outlined plans for a new operating framework for the Riksbank.

Central banks around the world have had to shoulder greater responsibilities for economic policy in recent years, often without a clear framework, and many countries are now looking at regulatory reform to improve the response to future crises.

The government said the Riksbank’s primary goal should be low and stable inflation, but that it should take a more holistic view of economic developments, much like the approach introduced by the U.S. Federal Reserve last year.

“The primary goal for the Riksbank shall be to maintain low and stable inflation,” the government said in a statement. “Without setting aside price stability, the Riksbank should, furthermore, contribute to a balanced development of production and employment.”

An inquiry in 2019 suggested significant changes to legislation governing the Riksbank: clarifying which policy tools it should have, codifying its role in maintaining financial stability and giving parliament the final say over the inflation target.

The government’s proposals retain most of those suggestions, which were openly opposed by the Riksbank and widely seen as limiting its policy toolkit.

Riksbank policymakers have said that, if the original proposals had been implemented in early 2020, they could have hampered the bank’s ability to respond quickly and effectively to the pandemic.

Sweden’s Financial Markets Minister, Asa Lindhagen, said on Friday the government had listened to the Riksbank’s opinion.

“We have made some adjustments so all the measures that the Riksbank has taken during the pandemic will also be possible in the future,” she said.

Much of the bill setting out the new policy framework put into law what was already happening in practice, she added.

The bill will now be sent to the Council on Legislation which will rule if it is in compliance with the constitution.

It then needs approval from parliament.

(Reporting by Simon Johnson and Johan Ahlander; Editing by Kevin Liffey and Andrew Heavens)

Source: Reuters


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