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Swedish central bank Deputy Governor sees Monetary Policy as Blunt Tool For Financial Stability

Thursday, 17 November 2011
Swedish central bank or the Riksbank’s  Deputy Governor, Lars Svensson, said Thursday that it is important that monetary policy focuses on stabilizing inflation and resource utilization only, adding that it should be kept separate from financial stability policy.


If the Riksbank doesn't focus solely on stabilizing inflation and resource utilization its performance in these areas may suffer, Svensson said in a speech at Gothenburg University.
Giving the Riksbank more targets may also result in a lack of clarity about what the Riksbank is trying to achieve, he said.

This may make it more difficult to evaluate monetary policy and hold the Riksbank accountable for its policy, he said.
Svensson also said the policy rate is a "blunt and ineffective instrument" for achieving financial stability.

Any "imbalances" in the financial sector can be much better handled with instruments within financial stability policy, such as

capital and liquidity requirements, he said.
"Nor should housing prices and household debt be treated as explicit or implicit target variables for monetary policy," he said.

Svensson said that monetary policy and financial stability policy are distinct in the same way that monetary policy and fiscal policy are distinct.
News source: Dowjones Newswire

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