Swedish c.bank says proposed changes to mandate would limit effectiveness

Sweden's central bank said on Thursday that proposed changes to the law governing how it operates would limit its capacity to take action in a crisis and thus increase the risks to the Swedish economy.

An inquiry last year suggested significant changes to legislation governing the Riksbank, clarifying which policy tools it should have, codifying its role in maintaining financial stability and giving parliament the final say over the inflation target. The proposed changes were widely seen as clipping the wings of the Riksbank, which has wide scope for independent action under current rules.

"The legislative proposals mean the Riksbank would have less capacity to decide over and use all of its tools and this would reduce the Riksbank's capacity to act quickly, flexibly and effectively," the central bank said in a statement. Its comments were part of a consultation process before the government presents legislation to parliament.

The Riksbank said that if the current proposals had already been in place, it would have made its response to the novel coronavirus less effective. "It would have limited the Riksbank's monetary policy toolbox and it would have been unclear what the Riksbank was allowed to do," the central bank said. "The proposals mean it will take longer for the Riksbank to implement measures, and in a crisis, time is of the essence."

The Riksbank General Council, a group of 11 parliamentary appointees that oversee the central bank, also criticized the proposals. "The proposal makes a distinction between monetary policy and financial stability measures that risks creating rigidity and reducing the Riksbank's ability to take action," it said in its response to the Finance Ministry's consultation process.

Proposed changes include limiting the number of terms the governor of the Riksbank can serve, cutting the number of rate-setters to 5 from 6 and giving the central bank a secondary goal of promoting economic growth in addition to its current inflation mandate.