Today’s rate hike by the central bank of Sweden ends an absurdity. ECB and other central banks with negative rates are getting ready to follow.
By Wolf Richter of WOLF STREET.
The central bank of Sweden, the Riksbank, has thrown in the towel on negative interest rates, and has become the first central bank in history to do so. At its meeting on October 24, it said that it would “probably” do so, after already suggesting at its September meeting that it would do so. And today, it did so. It announced that it raised its “repo” rate to 0%.
It wasn’t exactly a heroic move, but it was the first time in history that a central bank that had gone full NIRP, and had done so before most others in early 2015, has exited it. The new repo rate will be effective January 8. Chart via the Riksbank’s presentation materials. I circled today’s decision:
All options are on the table: “Improved prospects would justify a higher interest rate. But if the economy were instead to develop more weakly than forecast, the Executive Board could both cut the repo rate and take other measures to make monetary policy more expansionary.”
But it’s not getting out of NIRP because the economy is running red-hot. On the contrary…