Sweden negative rate might power home bubble
Financial analysts warn that Sweden’s policy of employing subzero interest rates to boost consumer prices might provoke an uncontrollable surge in house prices as well as household debt in Sweden.
Riksbank ,Sweden’s central bank has already reduced its key interest rate to -0.5% in an attempt to cope with sub-target inflation. The bank hopes to bring down borrowing costs in the national economy to enable businesses to take on new staff and invest. Furthermore, the measure is expected to make mortgages more affordable.
The given measure has already encouraged Swedes to borrow more money to purchase expensive property. As a result, house prices surged 15%, while the overall level of private debt to disposable income is gradually approaching 175%, compared to just 90% in the mid-1990s.
Undoubtedly, the unintended consequences of this newly introduced monetary policy is getting more dangerous, especially for mortgage credit.
By the way, negative interest rates appear to be in sharp focus. That’s because they’re pursued by a growing range of central banks who mostly don’t realize the policy's consequences.