http://www.bbc.com/news/business-31436657
Sweden's central bank has started buying government bonds worth $1.2 billion to increase money supply and additionally has lowered its interest rate from 0% to -0.1%.
However, Riksbank ( Sweden's Central Bank) thinks that these policies won't increase inflation rate by much. As of January 2015, the annual inflation rate is at -0.3% and so the central bank is prepared to further lower its interest rates and implement expansionary monetary policy.
Falling oil prices have dropped the interest rates all around the world. But Europe's inflation rate was already low and the oil prices have lowered them further. So, the consumer prices are lower than before and this could lead to a deflation as consumers and businesses might reduce their spending with the expectation of even lower prices.
However, lowering interest rates could also lead the Swedes to borrow too much, which could lead to an asset-price bubble.
Do you think Riksbank's expansionary monetary policy will achieve its goal of creating inflation? or will it back fire?
Sweden's central bank has started buying government bonds worth $1.2 billion to increase money supply and additionally has lowered its interest rate from 0% to -0.1%.
However, Riksbank ( Sweden's Central Bank) thinks that these policies won't increase inflation rate by much. As of January 2015, the annual inflation rate is at -0.3% and so the central bank is prepared to further lower its interest rates and implement expansionary monetary policy.
Falling oil prices have dropped the interest rates all around the world. But Europe's inflation rate was already low and the oil prices have lowered them further. So, the consumer prices are lower than before and this could lead to a deflation as consumers and businesses might reduce their spending with the expectation of even lower prices.
However, lowering interest rates could also lead the Swedes to borrow too much, which could lead to an asset-price bubble.
Do you think Riksbank's expansionary monetary policy will achieve its goal of creating inflation? or will it back fire?
1 comment:
While I do believe that monetary policy can combat the business cycle, I do not think that monetary policy can be used to pull growth out of a hat. I think that true growth comes from incentives and fiscal policy because, in the long run, money is neutral. However, I appreciate the Swedes for the experiment they are about to run in their economy.
Post a Comment