During a breakfast seminar on Tuesday morning, Deputy Governor Anna Seim discussed her views on the concept of the neutral interest rate.
“The neutral interest rate varies over time and cannot be read in any statistics, but one must try to assess where it lies using estimates from models and other relevant information. Assessments of the neutral interest rate are therefore associated with a significant degree of uncertainty,” she said.
Seim also stated that the long-term normal policy rate “probably lies between 1.5 and 3%.”
“The range reflects the uncertainty that the Riksbank estimates exists in long-term estimates of the neutral interest rate. The neutral interest rate is therefore assumed to continue to remain at historically low levels,” she said.
This means that it is not possible to rule out a policy rate that may need to be temporarily lowered to zero.
“In a recession or deep economic downturn when inflation is far below the target, a rate cut in the range of 1.5 to 3 percentage points is not particularly exceptional,” Seim concluded at the seminar.
Seim’s insights shed light on the complexities of monetary policy and the challenges central banks face in navigating uncertain economic conditions. As global markets continue to be impacted by various external factors, understanding the dynamics of interest rates and their implications is crucial for policymakers and investors alike.
The discussion around the neutral interest rate highlights the importance of adaptability and flexibility in monetary policy decisions. By acknowledging the inherent uncertainties and fluctuations in the economy, central banks can better position themselves to respond effectively to changing circumstances.
Overall, Deputy Governor Anna Seim’s remarks provide valuable insights into the nuanced world of monetary policy and the considerations that shape interest rate decisions. As the economic landscape continues to evolve, her perspective serves as a reminder of the ongoing efforts to maintain stability and promote sustainable growth in an ever-changing global economy.