Riksbanker Who Left in Protest Says Untried Steps Only Hope

Lars E. O. Svensson -- a man who has devoted his career to understanding inflation and who last year left the Riksbank’s board in protest -- says interest rate cuts alone may not be enough to save Sweden from deflation.

As a first step, the central bank will tomorrow need to cut the repo rate -- now 0.25 percent -- to zero, or even minus 0.25 percent, said Svensson, a former Princeton University colleague of ex-Federal Reserve Chairman Ben Bernanke and Nobel laureate Paul Krugman. The bank should then issue guidance that rates will be unchanged for at least two years because its current forecast for tightening late next year is “completely unrealistic,” he said.