Tag: Ingves

19 Dec. – great interest in 0% interest

champagne bubbles are also small zeroes
pic: 123rf.com

Whether or not you’ve been waiting for this moment for years, or dreading it, it’s happened – the Swedish Central Bank, Riksbanken, raised the repo rate to 0%, ending five years of minus interest.

The case of “Sweden and the minus interest rate” will be one for the economic books in the future – did it help? did it make things worse? The jury is still out. For one thing, the minus interest rate was a large contributing factor (although not the only factor) to the weak krona. It made Swedish goods cheaper, but imported goods more expensive. Many arguments have been made, also by the Swedish Fed chief Stefan Ingves, that the weak krona turned companies into “zombie companies” – surviving basically because of the cheap and available credit (SvD.se/krona). Even huge and stable companies like Volvo didn’t love the negative interest rate because, it was said, it gave a false picture of economic reality. Finally, the other driving reason for the negative interest rate was to try and keep inflation at, or close to, 2%. See this post for earlier info on the topic.

Sweden’s inflation has not made it up to 2% yet, despite all the efforts. The negative interest rate didn’t work. Many are starting to even question the link between inflation and interest. Furthermore, many economists don’t see a violent end to the huge growth Sweden’s economy has enjoyed over the last 5-10 years, believing instead a sort of economic “levelling off” is more likely. In the end, it seemed that most economists were for raising the rate, and for making it slightly more normal. And now it’s done.

Most Swedes will not be wildly affected by the change. 0% is still an unbelievably low interest rate. SvD’s Joel Dahlberg rated it as still being able to drink “glass after glass” of champagne without having to suffer a hangover.

Not everybody gets to drink the champagne though, just as when the interest rate was minus. Retirees and others who survive on their money in the bank or in their retirement accounts gaining a little in value due to interest are still out of luck. The other worry that won’t be lessening any time soon is the ballooning debt of the average Swedish household – it’s been cheap to get a loan, and it’s still cheap to get a loan. When the interest rate rises, which it is bound to do at some point, those loans will get expensive.

But that isn’t now, and Ingves has said that the rate will likely remain the same for a few years assuming nothing untoward happens. That will be a thin comfort if crash happens, but, now that a minus interest rate has been normal for so long, it’s become something that can be done again. As Ingves put it for DN: “Zero is not the bottom for interest. Periods of negative interest can come again. But this is all hypothetical, and we are not there today.”

Mon. 12/8 – how low can you go?

pic: sleepadvisor.org

Would you pay to keep money in a bank? Would you contribute to your bank’s “stability” by paying them to hold your hard-earned kronor? So far, banks have passed on passing on negative interest rates to customers’ regular savings accounts, but rumours have begun to circulate that having to pay a bank to hold on to your savings isn’t as foreign a concept as once thought.

The article on Bloomberg’s website spells it out clearly “Depositors are next as Nordic Banks Buckle Under Negative Rates“. The question is, do the banks dare to make people pay to have an account? Who will be the first to try it, and risk the ire of their customers? Will customers actually accept it?

The Swedish central bank’s Stefan Ingves has stubbornly held on to his idea of negative interest rates, even when even his inner circle is divided on the issue. Previously, it was held that it was good for Sweden’s exports, as the weak krona (due, in many ways, to the negative interest rate) makes Swedish products seem inexpensive. But even business owners have begun to complain, finding that their product is almost working under false pretences, and that it is harder to price against the market. At first, it seemed great, but now, after some time has passed, not so much.

Banks have made money with the negative rates by relying on asset management and other fee-generating products, Bloomberg reports. But that stream might not now be strong enough. The director of the Danish Bankers’ Association is quoted as saying “banks are selling their products below cost price” – something that can’t be kept up. So far, though, only Credit Suisse has said it will impose a cost on its customers – those that have over a million Euro in deposits.

So far so good, for most people, obviously. But only just as long as it stays at that level. As we now appear to be heading into a sort of economic slowdown, and things may get tight, this is not as sure as the expression “like money in the bank” once implied.

Update August 20 – DN.se reports that that Danish bank Jyske is now implementing a negative interest rate for its customers that have over 7.5 million kronor (about 10 million Swedish kronor, or about a million bucks) in the bank (). A customer that has 8 million kronor will pay about 48 thousand kronor to keep their money there.