Ingves, the star central banker, pauses for rethink

The international reputation of Sweden’s central bank Governor Stefan Ingves is such that his speech becomes a story even before delivery.

As with his most recent talk, the reason was not merely the title “Time to rethink - inside the head of a central bank governor”, highlighted in advance on the website of Sweden’s Riksbank. Primarily, it was because Ingves himself - arguably one of the world’s star central bankers - was about to deliver a speech under that title.

No wonder the actual speech got both media and fellow central bankers interested.

So what did Ingves say?

The following is a selection of key quotes that I consider useful in providing an insight into the way one of the most reputable central bankers thinks about issues related to policy communications:

As regards monetary policy, my conclusions are that our policy of flexible inflation targeting has largely worked well. New experiences and research suggest that there are a few things that we should perhaps modify in order for it all to work even better. As regards financial stability, a much more major rethink is required.

I am quite convinced that flexible inflation targeting in some form or other will continue to be the best-suited monetary policy framework in the future.

The target level is not set in stone but a change should not be made lightly. There may be reason to wait until a reasonable degree of consensus has been reached among central banks and in the research community. This would probably increase confidence in a change to the target level.

The Riksbank has not had any rigid fixation with pinning the inflation target at exactly 2 per cent at all times, but an explicit target is nevertheless necessary as a guide to monetary policy and inflation expectations. Even with an interval, monetary policy would more often than not aim to reach the mid-point of the interval. But it could make things easier if it takes quite a long time to achieve the target. And an interval may be a good way of communicating uncertainty about the future and about the effects of monetary policy.

The higher the confidence in the inflation target, the more consideration the central bank can show for aspects other than inflation – the more flexible monetary policy can be.

Another remarkable thing about this speech is that it is actually written in very clear and plain language. That certainly is another reason why Ingves stands out from the crowd of the world’s central bankers. As an illustration, consider his “definition” of monetary policy:

A central bank is “the banks’ bank”, not just in financial crisis situations but also on a day-to-day basis. The banks make payments between themselves via the central bank and they can borrow or deposit money there for the short run. The terms determined by the central banks for these transactions affect interest rate-setting and credit flows in the economy. This is what is normally referred to as “monetary policy” and receives considerable media coverage and space in the economic policy debate.

A central bank is the banks’ bank not just in financial crisis situations, but on a day-to-day basis, “24/7” … the central bank is where the money is. It is also at the central bank where the amount of money can be increased or reduced.

I cannot resist wondering how many other central bankers are able to express themselves in the way so easily accessible to general public.