Swedish GDP is shrinking this year. Consumption is failing and construction is crumbling. Mortgage rates have skyrocketed and homes have become difficult to sell. Bankruptcies are becoming more common. The notification increases. And companies’ hiring plans point downward.
“We know that interest rates hit households”
The effects of the Riksbank’s interest rate increases – from 2.50 to 4.00 percent under Erik Thedéen’s leadership – are many and clear.
TT: How does it feel to sit and make such interest rate decisions, which make it difficult for so many?
– That is a very good question. You have to think like that, I think. This is actually something that affects households and businesses a lot, says Thedéen.
But according to Thedéen, inflation hits harder than interest.
– It is little consolation if you are in a tough situation with both interest rate increases and inflation. But I think it’s a reasonable argument.
He thinks it is too early to decide whether the Riksbank has gone too hard:
– There is a risk that we have taken in too much. There is a risk that we have included too little. We try to understand the outside world as best we can in order to make reasonable decisions.
– We haven’t seen the results yet. But I don’t think that risk is imminent, that we have taken in too much. And there is actually also a risk in the other direction, that inflation takes hold and the krona weakens again. Then we might be in a different situation.
“We need a serious debate”
Households with large mortgages – often in big cities – are among the year’s big losers. And some highly leveraged companies – many in the real estate sector – have experienced acute financial problems in the interest rate shock.
The crisis of the real estate companies upsets the governor of the Riksbank in particular, as it poses a threat to the entire Swedish economy.
– We need a serious debate about the fact that real estate companies have been allowed to borrow so much that they actually expose the Swedish economy to great risks. I don’t think it’s a reasonable order, he says.
The theme describes it as a system error.
– It is a system of credit analysts, equity analysts and those who do property deals that have somehow allowed this to happen.
– Our real estate sector is highly indebted, large and has connections to the banking system. Sweden stands out here and I don’t think we should do that in the next crisis.
But Thedéen is most concerned right now about the geopolitical development. A visit to the central bank in the war-torn Ukrainian capital of Kiev in December made a strong impression.
– The Ukraine war is worrying. What is happening there and what is happening in the extension of that war? Then we have the war in the Middle East and elections in the United States. It is clear that these are still factors that are a more tangible risk going forward than Swedish factors.
Invitations despite interest rate increases
The interest rate increases may have washed away the label of monetary policy “dove” that many observers tried to put on Thedéen when he took office a year ago. They have also helped push CPIF inflation down to 3.6 percent, from the peak of 10.2 percent in December 2022.
In his last appearance before the Christmas break, Erik Thedéen made it clear that he no longer believes that an interest rate hike is needed at the beginning of 2024 – which he only a few weeks earlier saw as a fairly likely scenario.
Thedéen laughs when he is asked if, despite all the interest rate increases, he receives invitations to the Christmas dinner.
– I have a core group of friends who actually still like me as a friend.
Facts: Choose variable interest, believe in the krona
Riksbank governor Erik Thedéen has long since chosen to have variable interest rates on his mortgages, which add up to SEK 3.6 million:
– I chose it once and I have decided that I will not change it as long as I have this job. Whether it’s good or bad, time will tell.
When asked if he would prefer a bundle of euros or kroner under the tree, Thedéen replies:
– I must say that I think the krona will continue to strengthen. We at the Riksbank still think it is undervalued.
– We know very little about what governs exchange rates in the short and medium term. So it is clear that the krona can go weaker. But in some sort of medium term, we believe that it will still be stronger.
Facts: Can imagine two terms of office
The father of three and 60-year-old Erik Thedéen has spent most of his career in the service of the state since he obtained a master’s degree in economics at the Stockholm School of Economics in 1989. He met his wife Susanne at his first job after graduation, when he worked as a trader and analyst at the Riksbank.
Since then, he has been, among other things, head of debt management and deputy national debt director at the Swedish National Debt Office, CEO at the Stockholm Stock Exchange, state secretary at the Ministry of Finance, CEO at the pension fund KPA and director general at the Financial Supervisory Authority (FI).
At the Riksbank, Thedéen can imagine staying on as head a bit into the 2030s – if he still wants to and receives renewed trust after the first six years. But it will not be until 2040, which would have been required if he were to serve as long as the representative Stefan Ingves.