Erik Thedéen: The links between monetary policy, financial stability and fiscal policy

Speech by Mr Erik Thedéen, Governor of the Sveriges Riksbank, to the Swedish Economic Association, Stockholm, 23 May 2023.

The views expressed in this speech are those of the speaker and not the view of the BIS.

I shall begin by thanking you for the invitation to come here. I have been looking forward to speaking to the Swedish Economic Association, as it is an opportunity for me to discuss a subject in more depth. Today, however, I intend to mix some current topics – high inflation and risks in the financial system – with a more fundamental discussion of the links between monetary policy, financial stability and fiscal policy. Finally, I will also say something about how I view the monetary policy tools.

My main messages

For some time now, inflation has been far too high both in Sweden and abroad. It is important that inflation quickly falls back to the 2 per cent target. We need low and stable inflation to secure confidence in the inflation target and good economic development. Our most recent assessment is that inflation will be close to the target next year, but it is of course difficult to be sure, and new information about developments will – as always – be decisive for monetary policy going forward.

There has been turmoil on the financial markets during the spring. Banks in both the United States and Switzerland have suffered major problems, forcing authorities to make far-reaching interventions to avoid a financial crisis. Once again, we have seen confirmation of how dependent we are on the functioning of financial institutions, and how financial problems in one part of the world can easily spread to other parts. As a consequence, global standards for financial regulation are likely to require a number of changes.