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Free AccessMNI INTERVIEW Legislators Seek To Clip Riksbank Policy Freedom
-Swedish Parliamentary Committee Head Mats Dillen Talks To MNI About Reforming
The Riksbank
-Parliamentary Approval Would Be Needed To Change Inflation Target
-Private Sector Asset Buys Should Only Be A Last Resort; No Helicopter Money
By David Robinson
LONDON (MNI) - Proposed reforms of the Riksbank would erect a hurdle to
changing the inflation target and curb the governor's influence over the Swedish
central bank's monetary policy direction, the head of a key cross-party
parliamentary committee that has drafted the changes told MNI in an interview.
The suggested reforms, contained in a 2,000-page report put out for public
consultation, would also make it likely that taking QE beyond the purchases of
sovereign bonds to include private sector assets would only be a last resort in
a future downturn, said Mats Dillen, Chairman of the Parliamentary Inquiry into
the Riksbank.
Dillen, a top Swedish Ministry of Finance official, explained how the
committee's proposals unveiled last Friday seek to strike a delicate balance
between protecting central bank independence and bolstering accountability to
parliament. Whereas the Riksbank Executive Board can currently change its
inflation target unilaterally, the proposals would require the central bank to
obtain parliamentary approval for any such change.
Swedish constitutional law makes it hard to make any changes that would
allow parliament to set the numerical inflation target and this is "something
that protects the independence of the Riksbank," Dillen said. But he added that:
"Compared to a model where the Executive Board decides, you have more checks and
balances" under the proposed changes.
--ENSURING BROADER GOALS
The objective of monetary policy would be sustainably low and stable
inflation under the new act proposed by the committee, The Riksbank's current
choice of inflation target, 2.0% for the CPIF measure, which is CPI with a fixed
interest rate, is already approved of by the committee.
But the reforms are aimed at preventing Riksbank Board Members becoming
fixated on the inflation goal alone. While current Riksbank policymakers choose
to take a broader and more pragmatic approach to monetary policy setting, the
proposed reforms would require them to include support for balanced output and
employment.
"It reflects the existing practice because the Riskbank is flexible...We
think this is a good policy. As the law is formulated today the Riksbank can
change its policy and become inflation nutters, so to speak, and we would not
like to see that," he said.
--ALL CREATED EQUAL
Another proposed reform is that the policy-setting Riksbank Executive Board
would be cut from six to five, creating an odd number that would deprive the
governor of his current power to cast the deciding vote in the event of a tie.
"When taking policy decisions we would like to see that each member of the
Executive Committee has the same weight," Dillen said.
It will be a slow process to get the draft law into effect as it involves
constitutional change, making January 2023 the earliest date for implementation.
--LAST RESORT QE
The proposed act also addresses Riksbank procedures for carrying out
quantitative easing and its potential scope. Previous asset purchases saw the
central bank owning close to half the outstanding stock of domestic government
bonds and the committee does not wish to encourage any switch into buying
private sector assets.
"Purchases of private assets will only be allowed in exceptional
circumstances. That condition doesn't apply when you buy sovereign debt. It only
applies when you buy private assets," Dillen said.
"This means that buying private assets that is not the first thing you do,
it is the last thing you do," he added.
Dillen said that the Riksbank would be subject to "a principal of
proportionality" under any QE programme. "They have to weight the positive thing
- getting closer to the inflation target - with the risks to the Riksbank
balance sheet and for public finances .. if the Riksbank made losses .. if it
buys very high-risk assets," he said.
Under the proposed reforms, the Riksbank would not be free to adopt a
still-more radical approach to monetary policy through launching some form of
so-called 'helicopter money', involving direct or indirect transfer of money to
households.
"We have problems with (European) Union law here but we are also clear that
helicopter money is not allowed because this is a form of fiscal policy, really,
and we do not give that kind of power to a central bank," Dillen said.
--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com
[TOPICS: MX$$$$]
To read the full story
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.