A symbolic act with small effects – Swedish newspaper Svenska Dagbladet

A symbolic act with small effects – Swedish newspaper Svenska Dagbladet

With the reduction join the ranks of the Swedish Central Bank to the Danish and Swiss counterparts, which are members of the exclusive club of Central Banks that have negative interest rates. While Japan may be said to be an associate member in which the lower portion of its interest rate corridor is also located on the minus side.

The decision to go below zero level was still surprising. Hardly any of the surveyed chief economists and other pundits had with this as a likely outcome.

But after many years taking his eyes off the target, to focus instead on the Riksbank’s liking very high indebtedness of Swedish households, so they have had a need to highlight that the inflation target again applies.

Seen in context was less the interest rate is a natural follow-up at zero interest rate announcement in October, when inflation since then have declined further. As the Riksbank has fallen farther in from the 2 per cent has also inflation expectations ratcheted down to now clearly below 2 per cent level five-year term.

Many have downplayed the risks of low inflation but it becomes too low, the friction of price formation increasing with growing difficulties in obtaining the necessary and market relative price changes in many sectors. This is particularly true on the wage side, where few workers or unions are prepared to accept nominal wage cuts. The alternative is then to be adapted by higher unemployment.

Meanwhile, the interest rate announcement adaptation to the situation in other countries. Deflation, or falling consumer prices, are now a reality in some 30 countries worldwide, of which more half are in the EU and most of the latter within the euro area.

With the economic and geopolitical tensions that exist in our proximity – with the unfortunately increasing risk of Grexit and the Russian-led aggression in Ukraine – then the krona, which has occurred in the wake of the Riksbank reduced hökaktighet and muffled price reduction level and oxygenated Swedish export industry, quickly turn into its opposite.

The announced purchase of government bonds should be as said seen as a symbolic gesture. This is equivalent to 2 percent of the outstanding stock of Swedish government bonds and 0.3 percent of Swedish GDP.

That compares with the ECB plans to buy up bonds for 1900 billion, equivalent to 75 percent of euro area countries’ GDP. But it shows that you can do more.