Sweden's Hike Holds a Lesson for the ECB
Misguided anxiety about subzero rates has led to unnecessary tightening. Other banks should take heed.
No need to panic.
Photographer: Mikael Sjoberg/Bloomberg
If you’re searching for an example of how not to deal with negative rates, look no further than Sweden. The Riksbank chose to raise its repo rate back to zero on Thursday, after years of negative rates, but it’s not at all clear why.
Sweden’s economic outlook hardly suggests a hike is needed. Inflation is running at 1.7%, which is just below the central bank’s target of 2%. Growth (adjusted for calendar effects) is expected to slow to 1.2% in 2019 and 1% in 2020, from 2.3% last year. In its Monetary Policy Report, the Riksbank highlights risks to both external and internal demand, because of the trade conflict between China and the U.S. and a decline in consumer confidence. Yet two deputy governors expressed reservations about the move.