Sweden's Riksbank governor urges retaining household indebtedness standards after analysing weak consumption and the housing market

In a speech at the Stockholm Chamber of Commerce, Sweden's Riksbank Governor Erik Thedéen reviewed why Swedish households’ real disposable income and consumption weakened more than in many other countries during the high-inflation period and how this interacted with the housing market. With inflation close to the 2 per cent target again and real wages rising, he argued that conditions are favourable for a stable upturn in purchasing power and consumption, while warning that Sweden’s high mortgage debt and short interest-rate fixation periods remain a vulnerability. Thedéen linked the weaker consumption outcome to subdued growth in labour income, a larger erosion of purchasing power as the krona depreciated sharply in 2022 and 2023, and a rapid rise in interest costs for heavily indebted households with variable-rate loans. He noted that house prices fell by almost 15 per cent from peak to trough and that residential investment dropped sharply, contributing negatively to GDP growth by almost 2 percentage points in 2023 and 2024. On monetary policy, he said the Riksbank had to raise the policy rate to 4 per cent as the inflation outlook deteriorated, with cuts since May 2024 helping bring interest payments as a share of household disposable income down from around 7 per cent in 2024 to around 5 per cent, and the forecast pointing to the policy rate remaining roughly at the current level. He also underscored the role of amortisation requirements, mortgage caps and banks’ credit assessments in resilience, and called for maintaining clear rules and standards around household indebtedness and safeguarding the “amortisation culture” now beginning to take hold.