Sweden's central bank, the Riksbank, just slashed its main interest rate to zero. That's zero as in nothing, nada, 0%.

It's a rare move. Normally, central banks that want to boost their economies and fuel a bit of inflation like to keep their interest rate nominally above zero at 0.25% or 0.5% to maintain the fig leaf that they're not targeting a "no-interest" interest rate. Being just above zero still gives you one last weapon to use, in the form of a cut to zero, if things get really bad.

But in Sweden, the fig leaf has been abandoned altogether. The country is now looking toward negative interest rates as the next place to go a situation most people only hear about in theory in macroeconomic classes. The European Central Bank started flirting with that policy in June.

The country doesn't use the euro, but like the rest of the eurozone it is also mired in a low inflation and deflation scenario. The most recent inflation data for September recorded a 0.4% drop in prices compared with the same month last year. 

Like the European central bank, the Riksbank tried to hike interest rates as the economy appeared to be recovering in 2011. It has since been forced into an embarrassing u-turn. Then Riksbank deputy governor and esteemed monetary economist Lars Svensson argued against the move when Sweden began tightening. 

See Also:

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