Sweden cuts rates below zero as global currency wars spread
Morgan Stanley warns that the world is revisiting the “ghosts of the 1930s” as one country after another tries to steal a march on others by devaluing first
By Ambrose Evans-Pritchard
TelegraphUK
12 Feb 2015
Sweden has cut interest rates below zero and launched quantitative easing to fight deflation, becoming the latest Scandinavian state to join Europe’s escalating currency wars.
The Riksbank caught markets by surprise, reducing the benchmark lending rate to minus 0.10pc and unveiled its first asset purchases, vowing to take further action at any time to stop the country falling into a deflationary trap. The bank presented the move as precautionary step due to rising risks of a “poorer outcome abroad” and the crisis in Greece.
Janet Henry from HSBC said the measures are clearly a “beggar-thy neighbour” manoeuvre to weaken the krone, the latest such action in a global currency war that does little to tackle the deeper problem of deficient world demand.
The move comes as neighbouring Denmark takes ever more drastic steps to stop a flood of money overwhelming its exchange rate peg to the euro and tightening the deflationary noose.
The Danes have cut rates four times to minus 0.75pc in a month to combat fall-out from the European Central Bank’s forthcoming QE. They have even taken the unprecedented step of halting all issuance of government bonds.
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