Riksbank Plans Interest Rate Hikes

Swedish central bank, Riksbank, is planning to go against the flow of interest rate cuts. That is in spite of the mounting signals that the country’s economy is faltering.

In late October, the bank signaled this plan to end its venture into negative interest rates. During that statement, it said that a long period of sub-zero rates could result in some “negative effects.”

Afterward, it forecast an increase in rates from -0.25% to zero. The market expects the bank to implement its plan during its pre-Christmas meeting on December 19.

This plan comes even as other major central banks are sticking with their loose monetary policy. Among these banks are the European Central Bank and the Bank of Japan.

These loose policies have also gathered some criticisms because of their side effects. Negative rates, according to them, could punish prudent savers and damage banks’ balance sheets.

Riksbank also Faces Faltering Economy

The FX market considers Riksbank plan as out of the ordinary because of the current gloom in the global economy.

With the uncertainty in the US-China trade war, the global economy has also strained with major power moves and shifts such as the Brexit.

Sweden is also facing a hard time in its economy.

A manufacturing survey recently showed the slowest activity in the country since 2012. This data is just the latest in a string of negative polls.

Also, economic growth was slower than the bank’s expectations. It expanded only 0.3% in the third quarter. On a year-on-year basis, it grew only 1.6%.

For Christina Nyman, former deputy head of Riksbank monetary policy department, “it’s bad timing.” She cited the cooling labor market, which, while not a crisis, also signals a cooling economy.

The ECB has flagged the country’s rising housing market as a potential financial risk.