Sweden’s Riksbank and the SNB, however, lowered their reference interest rates almost to the 0% bound,3 thereby de facto exhausting their room for manoeuvre using conventional monetary policy measures. Movements in nominal exchange rates in Europe, which will play an important role in the second and third phases, varied from one country to another during this first phase. There was already upward pressure on the Swiss franc (cf. chart 5), due to the currency’s traditional role as a safe haven. In times of substantial global uncertainty, investors take refuge in such currencies, which subjects them to upward pressure. 1  Chart 3 shows consumer price indices in the Czech Republic, Denmark, the euro area and Switzerland. For Sweden, the CPIF, of relevance for the Riksbank, is shown; this is a consumer price index that assumes fixed mortgage rates and thereby excludes the effects that interest rate changes have on households servicing mortgage debts. In this chart and those that follow, data is shown only until the end of 2015. 2  Chart 4 shows the following reference interest rates: for Switzerland, the middle of the target range for the threemonth Libor; for Denmark, the central bank’s lending rate; and for the Czech Republic, the euro area and Sweden, the repo rate for monetary policy operations. 3  In Sweden, the overnight deposit rate was lowered into negative territory in 2009. This facility, however, was and is almost never used – rather, the intraday deposit facility is used, and its rate remained positive in 2009.
Demand slump following the onset of the financial crisis (2008–2011) The key event following the onset of the financial crisis was the collapse of the Lehman Brothers investment bank in September 2008. The subsequent weeks and months saw a sudden, substantial slump in demand for goods and services. Between 2008 and 2009, global imports and exports fell by some 25% in nominal terms, the sharpest decline since records began in 1948. The euro area, and the neighbouring countries examined here, slipped into recession (cf. chart 2). GDP in the euro area plunged by around 5% in 2008 and 2009, at the height of the crisis. The drop in the neighbouring countries ranged from 3.4% in Switzerland to 7.2% in Denmark, whose economy had experienced a phase of overheating in pre-crisis years. Inflation rates fell sharply due to lower demand and falling oil prices (cf. chart 3).1 Inflation in the euro area declined to −0.6% in the course of 2009. The lowest inflation recorded during this period was −1% in Switzerland. In the Czech Republic, too, inflation was negative for a short period in 2009. In Denmark and Sweden, it remained in positive territory. Central banks reacted to the global slump in demand with drastic interest rate cuts – the conventional monetary policy instrument (cf. chart 4).2 In addition, markets were provided with large amounts of liquidity. In the Czech Republic, Denmark and the euro area, there was still leeway for further steps even after these interest rate cuts.