If long-term negative rates haven’t worked in Sweden, what chance do they have of working for the economies of the eurozone?
The Riksbank’s decision to hike its repo rate to zero in late December has symbolic importance, as it was the first central bank to cut rates below zero a decade earlier. Given Sweden’s growth is now lower than it has been for most of the past 10 years, the decision supports the view that the risks to financial stability are now becoming so great that negative rates cannot go on.
Bankers – whose job it is to transmit monetary policy to the real economy – have long argued that negative rates could end up doing the opposite of what they are meant to do or even lead to bank runs.
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