A Nordic pioneer of negative interest rates gets cold feet

THE WORLD’S oldest central bank, Sweden’s Riksbank, is a trendsetter. In July 2009, in the depths of the financial crisis, it was the first central bank to cut interest rates below zero. It set the global record, of minus 1.25%, for the lowest interest rate on deposits parked with it by domestic banks. Now, however, it looks set to bring the experiment to an end. On December 19th it is widely expected to leave negative territory, raising rates from minus 0.25% to 0%.

Since the economy is in the doldrums, the rationale is unclear. Inflation is 1.7% and forecast to stay below the target of 2% for some time. Meanwhile, the most recent figure for annualised GDP growth was a paltry 1.1%, and the purchasing-managers index, a measure of business activity, is at its worst since the euro-zone crisis of 2012.

The words and actions of the Riksbank’s five voting members seem to be all over the place. At the most recent meeting, in October, all expressed concerns about the economy. Stefan Ingves, the governor, argued for a more expansionary monetary policy, noting that Sweden is particularly exposed to weakening global trade. Yet he and his colleagues agreed to the plan to raise rates at the next meeting, on December 19th.

Lars Svensson of the Stockholm School of Economics, a former member of the Riksbank, attributes the move...



via The Economist: Finance and economics Business Feeds

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