Sweden’s central bank has ended its five-year experiment with negative interest rates, raising its repo rate from -0.25 percent to zero on 20 February.
Other tools will be needed to guide economies through the coming global downturn, says Stefan Ingves, the bank’s governor.
Because negative interest rates put banking systems in jeopardy, government spending and asset-buying by central banks will have to play a larger part in any economic rescue, Ingves added.
In February 2015, Sweden’s Riksbank dropped its interest rate to -0.1 percent. Bank officials now say that inflation is not a danger and that the economy is slowing after a several years of unusually strong growth, so negative rates are no longer needed.
TRENDPOST: Sweden’s reversal reflects the growing belief among central bankers that negative interest rates are less and less useful. More bankers are calling for governments to take on the task of economic management through borrowing and spending.
“Monetary policy cannot, and should not, be the only game in town,” said Christine Lagarde, president of the European Central Bank. “Other policy areas, notably fiscal and structural policies, also have to play their part.”
Jerome Powell, chair of the U.S. Federal Reserve, said, “The current low interest rate environment means that it would be important for fiscal policy to help support the economy if it weakens.”