Posted by: Dirk | February 12, 2015

Swedish Riksbank goes negative

The Swedish central bank has announced a negative repo (main policy) interest rate of -0.1%. Here is the first paragraph of their press statement:

There are signs that underlying inflation has bottomed out, but the situation abroad is now more uncertain and this increases the risk that inflation will not rise sufficiently fast. The Executive Board of the Riksbank has therefore decided to cut the repo rate by 0.10 percentage points, to -0.10 per cent, and to adjust the repo-rate path down somewhat. At the same time, the interest rates on the fine-tuning transactions in the Riksbank’s operational framework for the implementation of monetary policy are being restored to the repo rate +/- 0.10 percentage point. Moreover, the Riksbank will buy government bonds for the sum of SEK 10 billion. These measures and the readiness to do more at short notice underline that the Riksbank’ is safeguarding the role of the inflation target as a nominal anchor for price setting and wage formation.

I find it strange that the Swedish government does not use fiscal policy. According to the National Debt Office, the debt as of December 2013 stands at only 35% of GDP. Sweden is not part of the euro area and hence does not face constraints from the Stability and Growth Pact. Sweden has been running persistent current account surpluses and would not have any trouble with the balance of payments if it would expand domestic demand. Inflation-targeting as a central bank strategy seems to continue its long fall. Let me end with an excerpt from one of the intellectual giants of Sweden, Knut Wicksell (1898):

wicksell98


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Categories

%d bloggers like this: