After being one of the first countries to lead the world into the negative interest rate era, Sweden has decided to end that policy. Paul Hannon reports in The Wall Street Journal:
In 2009, the Riksbank, the world’s oldest central bank, became the first to charge commercial banks to hold deposits rather than pay them interest. In 2015, it lowered its key policy rate below zero, following a similar move by the European Central Bank the year before.
On Thursday, the Riksbank raised the key rate to zero from minus 0.25%. The bank moved because a majority of its policy makers expect inflation to be close to its 2% target over the coming years. Some policy makers have also become more concerned that a longer period of negative interest rates could lead businesses and households to take on too much debt, or force banks to charge to accept deposits, which could lead to a rush into cash.
But it signaled caution, indicating it has no plans to raise its key rate further in the coming year. Underlining that caution, two of the six members of the executive board— Anna Breman and Per Jansson —opposed the move, preferring to wait until it is clear that the weak economic growth forecast by the central bank for coming years won’t pull inflation down.
With a similar focus on inflation, policy makers around the world are watching the broader impact of the Swedish experience, where subzero rates have stimulated the economy but have also driven household debt higher and weakened the country’s currency, the krona.
Read more here.