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  • Richard Milne & Martin Arnold

Why Sweden ditched its negative rate experiment


It is the biggest monetary policy experiment of modern times. One that has divided economists, central bankers and politicians. But now that Sweden has called a halt to its five-year trial with negative interest rates the serious work has begun on looking at whether it worked.

Sweden’s Riksbank, the world’s oldest central bank, was the first to take its main repurchase rate — at which commercial banks can both borrow or deposit money — negative in early 2015, to fend off deflation, only returning to zero in December.

The end of the Swedish experiment is being watched with intense fascination, not just by those central banks that still have negative rates such as the European Central Bank and Bank of Japan, but also by authorities and economists worldwide pondering how to respond to the next downturn with limited ammunition to stimulate the economy.

For many, it is still too early to judge whether negative rates have worked or caused lasting damage to the economy and finance sector. But, Jakob Carlsson, chief executive of the Swedish life insurer Lansforsakringar Liv, is in no doubt. He calls sub-zero rates “a mistake”, arguing that they force people to save more and spend less. “Sooner or later, we will have to pay the bill for this experiment of artificially created negative rates,” he says.

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