Sweden’s central bank ends negative interest rate experiment
Surprise hike will come next month despite slowing growth
Sweden’s central bank, the Riksbank, has announced that it will end its policy of negative rates in December while maintaining its benchmark repo rate at -0.25 per cent.
In a statement the bank said: “The forecast indicates that the interest rate will most probably be raised in December to 0 per cent.”
The decision comes even though growth in the Swedish economy is slowing. The bank recognised increasingly sluggish growth but said that it remains in favour of economic expansion as there was no sign of an immediate recession.
An interest rate rise bucks the global trend of increasingly lower rates. Central banks have sought to maintain growth in an atmosphere of slowing European growth, the US-China trade war and the possibility of a no-deal Brexit.
Sweden was the first country to try negative interest rates as a reaction to the 2008-09 financial crisis. It will now leave the negative rates club of central banks, which includes Germany, Denmark, Japan, and Switzerland.
Sweden’s decision to raise rates follows its Scandinavian neighbour, Norway. Although not changing rates in October, Norges Bank, the country’s central bank has increased rates four times in 2019 to 1.5 per cent.
With growth still faltering and fewer natural resources than its neighbour, Sweden is unlikely to raise any further. In its statement the Riksbank noted that beyond December “the interest rate will be unchanged for a prolonged period”.