The Swedish central bank, the Riksbank, "pioneered" the use of negative interest rates after the financial crisis, charging banks for keeping excess reserves with it from as early as 2009. In early 2015, it cut its main policy rate, which eventually sunk as low as 0.5%. The bank's goal was to prevent the Swedish krona from becoming too strong, thus hurting growth. But its drastic action also fuelled a housing bubble, which has driven private debt in Sweden to extraordinary heights, as the chart shows. As a result, the bank is changing course rates are now at 0.25% and it hopes to raise them to 0% in December. "Investors should take note," says Nick Andrews of Gavekal. "The Swedish canary may be signalling a shift in attitudes to negative rates."
Viewpoint
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