By Charles Duxbury
STOCKHOLM--One of the six interest-rate setters at Sweden's
central bank said Wednesday that a lower main interest rate would
have helped the Riksbank meet its target on inflation as well as
helping to bring down unemployment.
Unemployment in Sweden recently rose above 8% while the Nordic
state's consumer price index fell 0.2% in February, putting
inflation well below the Riksbank's 2% target.
"A more expansionary economic policy could have counteracted the
low demand pressure in the Swedish economy and contributed to a
more positive development of the labor market," Karolina Ekholm
said in a speech in the Swedish capital.
She said that concerns over financial stability had limited the
willingness of the majority of her executive board colleagues to
cut the main rate below the current 1%.
A four-person group including Riksbank Governor Stefan Ingves
has warned that keeping rates too low for too long would lead
households to borrow too much leaving them vulnerable if house
prices then fall or interest rates then rise.
The cost of using the repo rate to influence house prices and
household debt, in the form of inflation below the target and
unemployment, is under current circumstances too high, Ms. Ekholm
said.
It would be justified if Sweden were seeing a credit boom
throughout the economy, Ms. Ekholm said. "But this is not what we
are seeing," she said.
"All in all, credit growth is relatively low in the Swedish
economy," she said.
Ms. Ekholm is regarded as one of two doves on the executive
board at the Riksbank. Along with colleague Lars Svensson she
advocated a cut to the central bank's most important interest rate
last month when the majority voted through an unchanged rate of
1%.
Write to Charles Duxbury at charles.duxbury@dowjones.com
