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Swedish central banker questions efficacy of more rate cuts

Tuesday, April 5, 2016 - 06:31

[STOCKHOLM] Sweden's Riksbank could cut interest rates deeper into negative territory but it is doubtful whether that would get it any closer to its 2 per cent inflation target, Deputy Governor Martin Floden said.

In an interview in the Tuesday issue of Swedish business daily Dagens Industri, Mr Floden, who entered a reservation against the Riksbank's latest cut to a record low -0.50 per cent in February, also repeated his scepticism about currency intervention.

"At this stage, we are probably getting to a level where it doesn't have an impact on borrowing rates," Mr Floden was quoted as saying of the prospect of further rate cuts. "In a strictly technical sense, we could probably cut the repo rate quite a lot further, but the question is in what way this would be beneficial for the economy, the business cycle and contribute to higher inflation," he added, echoing comments he made in testimony to parliament in February.

Mr Floden, who also entered a reservation against the Riksbank's January decision to give Governor Stefan Ingves and First Deputy Governor Kerstin af Jochnick a mandate to intervene in the currency market, said such interventions should only be used with caution.

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"Currency interventions with the purpose of weakening the exchange rate to bring up inflation take place at the expense of other countries," he said. "Then one has to think about whether it is justified to conduct policy in that way." The Riksbank has repeatedly called on politicians to rein in rapidly rising household debt and house prices, fuelled in part by ultra-low interest rates.

Swedish consumer price rises slowed in February compared to the previous month but the trend in inflation remained positive, supporting views the central bank is done easing.

REUTERS

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