Downward trend in global real interest rates Per cent 6  6 United Kingdom USA Sweden  4  4  2  2  0  0  -2  -2  -4  -4 85  90  95  00  05  10  15  Note. 10-year yield on real government bonds in Sweden, the United Kingdom and the United States. Swedish real interest rates are zero coupon yields interpolated from bond prices using the Nelson-Siegel method. Sources: The Bank of England, the Federal Reserve, Thomson Reuters and the Riksbank Figure 7. Problematic inflation conditions, especially 2014-2015 Annual percentage change Inflation  Inflation expectations  3  3  3.0  3.0  5 years ahead 2 years ahead 1 year ahead  CPIF excluding energy CPIF  2.5  2  2.5  2  1  1  0  0  -1  2.0  2.0  1.5  1.5  1.0  1.0  0.5  0.5  -1 0.0 10  11  12  13  14  15  16  0.0 10  11  12  13  14  15  16  Note. Inflation expectations refer to mean value for money market participants. Sources: Statistics Sweden and TNS Sifo Prospera  17 [20]  Figure 8.
When the repo rate is negative, the banks pay interest to the Riksbank, as the banking system as a whole has a liquidity surplus that must be deposited in the Riksbank. The short-term interbank rates, that is interest on loans between the banks, and some government rates have followed the repo rate down below zero. However, the banks have not introduced negative deposit rates for households and most companies. Only a few economic agents, primarily other financial institutions, large companies and some municipalities, have experienced a negative deposit rate, and these can in some cases also borrow at a negative interest rate. Companies have been forced to expend a certain amount of resources on avoiding negative return on their funds, but they appear to have succeeded relatively well in this. Cutting the repo rate below zero has thus in total contributed to pushing down interest rates, but has not meant that interest rates have become negative for the general public. Good profitability among the banks and few signs of a decline in demand Another fear has been that negative interest rates reduce the banks’ profitability, which could lead to higher lending rates and a lower supply of credit. The reason for this is said to be that the banks’ deposit margin, that is, the difference between the interest on deposits and lending, would decline because it is difficult to cut the deposit rate below zero.