STOCKHOLM, Sweden – The oldest central bank in the world is looking like the most significant right now as it starts the trend of shifting away from negative interest rates.
Sweden is one of the very few economies that are starting to reduce major interest rates several years ago below zero.
Right now, the officials at the Riksbank, which was founded in Sweden in 1668, are strongly saying that the policy has done its job at stimulating the market so the repo rate will rise from being at the negative margin.
Now, the Nordic country is at the center of global monetary policy as others in the market nervously await. Officials in the euro market, as well as in Japan, Denmark, and Switzerland are currently in the same sentiments as Sweden, while the Federal Reserve has strongly resisted the call of the US President Donald Trump to venture out to negative territory.
According to a portfolio manager at the Catella in Sweden, Thomas Elofsson, the hike in Riskbank in December would suggest that the central banks agree that there are negative effects of having very low interest rates.
Elofsson further said that following how the ECB and the SNB communicate and work towards its new mindset will be interesting for the market.
The decision of the Riksbank, which is expected on December 19, is expected to have more monetary action compared to the central bank in the US, as well as what the eurozone has delivered the previous week. Economists have also predicted an increase in the quarter-point of the main policy rate in Sweden from its current negative 0.25%.
Meanwhile, the Federal Reserve has signaled an extended pause on December 11. the following day, Christine Lagarde followed with her first-ever press conference as the new president of the European Central Bank. Lagarde, during her speech, has put an emphasis on the upcoming review of the strategy of the central bank instead of listing impending policy moves of the institution.
Johanna Jeansson, an economist, said that the inflation data of Sweden for November advanced by enough to strengthen the rate hike that Riksbank is expected to impose next week. Governor Stefan Ingves is also expected to deliver new gains on the quarter-point rate on December 19, which would hopefully leave the negative rates after nearly five years, Jeansson further stated.
She also said that after these cues, the interest rates of Riksbank is expected to most likely stay on hold throughout 2020.
The quickening inflation has also enabled Stockholm rate-setters to argue that the policy has done its stimulus work, according to a professor at Princeton University, Markus Brunnermeier.