Economy
3 Nations Where Negative Interest Rates Are Creating Asset Bubble Risks
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Negative interest rates were thought to be the next best thing when it comes to quantitative easing. Never in our lifetimes have we seen a period where banks keeping reserve deposits and bond buyers are effectively being taxed or penalized for not investing elsewhere in the economy. Moody’s is warning that negative interest rates in Switzerland, Denmark and Sweden are having unintended consequences.
Sweden was said to be the most at risk of asset bubbles of the three nations. What matters here is that Moody’s rates each of the three nations at Aaa with Stable outlooks. The three have been among the first to push policy rates into negative territory.
Central banks have now lowered their key policy interest rates to -0.75% in Switzerland, -0.65% in Denmark and -0.50% in Sweden. Moody’s thinks the Swiss and Danish central banks were looking to reverse the intense appreciation pressure on their currencies after the European Central Bank introduced its quantitative easing program.
After a year of experimenting in the novel experience of negative interest rates, Moody’s sees Sweden as the most at risk of an ultimately unsustainable asset bubble. Moody’s said of Sweden:
In Sweden, the central bank is focused on lifting persistently low inflation, in the context of the ongoing strong economic expansion … the Riksbank has not been successful in engineering higher inflation, while Sweden’s GDP growth continues to be among the strongest in the advanced economies.
Moody’s thinks that the central banks of Denmark and Switzerland have achieved their main objective now that the appreciation pressure on their currencies has eased or disappeared. Mortgage lending also shows first signs of slowing in both countries.
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