(Lack of) diffusion everywhere: negative interest rates


Way back on August 27, 2009 the FT reported:

“Bankers Watch as Sweden Goes Negative”.

At issue was Sweden’s embrace of unorthodox monetary policy, specifically their decision to cut the interest rate paid on bank reserves below zero. In other words, they were charging a penalty. In the USA, by contrast, the Federal Reserve actually raised the interest rate paid on reserves.

Yesterday, the FT reported:

“Sweden records fastest quarterly growth”

That’s the fastest growth Sweden has ever recorded. Ever. They’ve already tightened monetary policy from where it was in the depths of the crisis and, naturally, are poised to do some additional tightening. So are bankers actually watching this? It seems to me they’re not. When Sweden did something unorthodox, people said the world’s central bankers were going to watch. It worked. It worked really really well.

But is anyone paying attention?


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