Sweden has taken steps towards combating deflation as the central bank cut the main interest rate to 0%, which was far bigger than many analysts were expecting.
The cut of 0.25% is a move to combat the slow inflation which the country is currently experiencing as prices are currently falling the banks wants to push towards the target level of 2% inflation.
The 0% interest rate is something other countries have seen considerable success with, with the United States seeing investors pour money into stocks and shares to make the most of their 0% rate which has spurred a growth and certain level of recovery in the economy. Sweden will be hoping to see similar effects with their move.
Despite this, the Swedish economy is actually relatively strong at the moment with a growth in household consumption and housing investment pushing the country forward. Gross Domestic Product and employment have also increased at a relatively good rate over the past twelve months. The broad downturn in inflation and the repeated downward revisions to the inflation forecast imply that underlying inflationary pressures are very low and lower than previously assessed so this move comes as the suggestion of reaching the 2% inflation target may take longer than otherwise expected.
After the cut was announced, the Swedish kronor fell to a four year low against the US dollar, coming in at 0.7%, however it did recover slightly to 7.3418 to the dollar. Against the euro the kronor fell by 1% to 9.3610.
As one of the world’s most highly developed post-industrial societies, Sweden has enjoyed considerable growth and prosperity over the past seventy years and has managed to avoid being too troubled by economic problems that hit the Eurozone as it is not a member state of the single European Currency despite being part of the European Union. However, with an export based economy a slowdown has been inevitable with trading partners in the European Union and elsewhere have been struggling themselves but the Swedish economy has insulated itself well and is expected to see a dramatic rise once again after trading partners find themselves on even footing.
With unemployment low and a core partnership between the public and private sectors, Sweden seems to be holding strong against downward pressures with an advanced welfare system, and their standard of living and life expectancy are almost second to none.
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