Five years ago, interest rates in Sweden dipped into negative territory, but that all ended on Thursday after the country’s central bank elected to raise rates by 25 basis points to reach the zero level.
“Sweden’s central bank ended its five-year experiment with negative rates amid growing concern about the implications for the economy, businesses and investors from sub-zero monetary policy,” a Financial Times article by Richard Milne noted. “The Riksbank raised its main repo rate on Thursday by a quarter percentage point to zero, a level it was last at in February 2015. The Swedish central bank indicated that interest rates would remain at zero for years to come and added that it could be forced to cut them again if the economy worsens.”
Apparently, it’s been a move that the general public has been clamoring for the past decade.
“The world’s oldest central bank has been under heavy scrutiny for its monetary policy ever since the 2008 global financial crisis,” the article added. “It raised rates in 2010 and 2011 leading to accusations of “sadomonetarism” from Nobel laureate Paul Krugman before consistently cutting rates down to a record low of minus 0.5 per cent, which was in place for almost three years from 2016 until the start of this year.”
The hope, of course, is the latest rate hike will inject some life into Sweden’s economy, but that remains to be seen whether this was a one-off move or if more rate increases are to come in 2020.
“The upshot is that the hawkish contingent will not have it all their own way and will face opposition if the economy stays sluggish next year, as we expect. All told while investors’ expectations are broadly in line with the Riksbank’s forecast that today’s hike will be ‘one and done’, we think that a reversal next year is on the table,” said David Oxley, senior Europe economist at Capital Economics.
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