Is zero rates the new lower bound?
The Riksbank was widely expected to hike rates today by 25 bps and they duly delivered, becoming the first country in the world to leave the negative rates experiment - after having gotten themselves into it back in 2015.
In truth, the hike wasn't needed (amid a backdrop of a slowing Swedish economy in general still) but it sends a powerful message to the world of central banking today.
Is negative rates counter-productive? That seems to be the belief of the Riksbank and it will surely pile on more pressure on the likes of the BOJ, SNB and ECB down the road.
Mind you, this isn't a Swedish economy that is running hot nor is it in dire need of rate hikes to stabilise economic conditions. And the Riksbank has made that clear as well in saying that rates are expected to remain at zero in the coming years.
If you look at Swedish inflation data recently:
Price pressures are still keeping close to the 2% target set out by the Riksbank - and has been that way since 2017 - despite a bit of a hiccup in the middle of this year.
This goes to show that the move to bring back rates to the zero-bound is not really needed but it is something that the central bank deems as necessary.
In short, they are putting an end to the negative rates experiment because they view that it isn't needed to maintain or improve current economic conditions.
It's only be a matter of time before we see increased scrutiny over other central banks that are stuck i.e. BOJ, SNB, ECB as to how they will handle things over the next few years.
As for the krona itself, it has weakened slightly in a more of a 'buy the rumour, sell the fact' price reaction but in the long-run, its value will be tied towards the Riksbank's rate trajectory and if they can stick with the current view of leaving rates at the zero-bound.
