Sweden’s central bank ends negative interest rates with key rate hike

he Swedish central bank on Thursday raised its key interest rate by 0.25 percentage points to 0 per cent, ending almost five years of negative interest rates.

The central bank said that although the Swedish economy was slowing down, the slowdown followed several years of high growth and strong developments in the labour market.

“Overall it means that the Swedish economy is going from a stronger-than-normal cycle to a more normal situation’’ the central bank, known as the Riksbank, added.

The Riksbank said Sweden’s gross domestic product was projected to grow 1.1 per cent in 2019, and at a similar rate in 2020.

It added that inflation had been close to the central bank’s target of 2 per cent since  2017, and it assessed that conditions were good for inflation to remain close to the target going forward.

Inflation was projected at 1.8 per cent in 2019 and 2020.

Two of the six governors entered reservations against the decision, citing uncertainty about the inflation rate.

The repo rate is the interest rate that commercial banks get when they deposit money for seven days at the Riksbank.

Repo rate is the rate at which the central bank of a country (RBI in case of India) lends money to commercial banks in the event of any shortfall of funds. Repo rate is used by monetary authorities to control inflation.

A negative rate means banks have to pay money for keeping deposits with the central bank.

The central bank said that it would continue to buy government bonds, adding that the key interest rate hike would be effective from Jan 8.

The Riksbank introduced its negative interest rate in February 2015.

Sweden is a member of the European Union but does not use the euro. (dpa/NAN)