Leif Pagrotsky on the Riksbanken’s Intervention

Leif Pagrotsky is a Swedish Social Democratic politician, who had various posts in the government of Göran Persson between 1996 and 2006. In 1997 Prime Minister Göran Persson made Pagrotsky Minister of Trade and in 2002 Minister for Industry and Trade. One of his most publicly known activities during this period was his efforts to promote Swedish popular music export. In 2004, he switched posts with former Minister of Education Thomas Östros. At the same time, the responsibility for cultural matters, previously belonging to a separate ministry, was added to Pagrotsky’s portfolio. Pagrotsky has a Bachelor of Arts and a Master of Science in economics from Gothenburg University. Before joining the Cabinet, Pagrotsky worked at the Central Bank of Sweden and in the Ministry of Finance.
  • Transcript

TRANSCRIPT

Question: What led to the Riksbanken’s decision to cut interest rates?

Pagrotsky: Until a few months ago, we had a problem of rising inflation expectations among the Swedish public, and decision makers in the business community were preparing for higher inflation, wage negotiations were preparing for higher inflation, and the economy was perhaps set for a higher level of inflation, so the Central Bank reacted by raising the interest rates to demonstrate to the economic agents in the country that this was not to be tolerated, but what has happened now is that international prices have come down. The oil price is down $100 in a few months, and the raw material prices, food prices are on the way down. It’s a totally different situation. The impulses that produce inflationary expectations in my country are not longer there. The board of directors in the Central Bank took notice of this. They said now the threat of inflation is gone, the economy is in a very sharp fall, and there is instead now possibilities of very, very low inflation, so there’s no need to have a higher interest rate anymore, so they made a totally different assessment, and that has, after having cut interest rates by another 100 bases points about a month ago, another 175 today was [welcomed] and I think a well motivated step.


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