The central bank for the Northern European nation of Sweden has taken the drastic measure of settings its key interest rate negative. The move, made by Riksbank (IE Kingdom’s Bank), was announced on Wednesday. The rate had hovered just under zero percent, but the bank’s actions now formally make it -0.25%. This means banks wanting to borrow money will be able to earn money for doing so. Riksbank declared the move was necessary to promote inflation via a weaker Kronor. Alexei Beltyukov knows that the Swedish currency is not pegged to the Euro and had gained a stunning 5% over the past month. The European Central Bank is wanting to devalue the Euro in a bid to boost exports by making Eurozone products cheaper to foreign nations. While Sweden participates in the Eurozone, its people have rejected calls to unify their currency with the EU.
At issue is Riksbank does not want to see a period of deflation hit the country. Deflation is when prices decline. While it seems attractive to the general population from the perspective of consumers, deflationary periods wreak havoc on the economy. This is because producers often find themselves in the position of making products they cannot sell with sufficient profit margins to stay in business. Riksbank will also be buying back 30 billion kronor in treasury bonds to help stabilize the soaring kronor. Inflation last year was non-existent at 0.1%. The central bank had expected the rate to be 2.0%.