Why Sweden just ditched its negative interest rates – after almost five years

Why Sweden just ditched its negative interest rates – after almost five years
The Riksbank's head Stefan Ingves (right) presents the decision on Thursday. Photo: Jessica Gow / TT
Sweden's central bank on Thursday raised the country's interest rate to zero for the first time since the beginning of 2015.

The bank voted to raise Sweden's key interest rate – the repo – from -0.25 to zero percent after a meeting in the morning, saying that inflation had been close to its target of two percent since the start of 2017.

“The Riksbank assesses that conditions are good for inflation to remain close to the target going forward,” it said in a statement. “The forecast for the repo rate is unchanged, and the repo rate is expected to remain at zero percent in the coming years.”

Swedish and international experts have warned that the country is heading for an economic slowdown, after years of a booming economy. However, the Riksbank said this followed similar trends internationally. 

“The slowdown is occurring after several years of high growth and strong developments on the labour market, and overall it means that the Swedish economy is going from a stronger-than-normal cycle to a more normal situation,” it added.

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The bank first took the landmark decision to slash the rate below zero in February 2015, hoping that the strategy would boost inflation to raise the price of everyday goods and services which had been stagnant in recent years, and therefore improve the Nordic nation's economic prospects.

Sweden's relatively weak krona received a slight boost on the back of the news about the rate hike on Thursday, but there were no major market reactions in response to the decision, which had been expected.

The Riksbank board was not unanimous, with two of its six members preferring to wait to raise the rate.


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