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.
These problems can be mitigated if there is a certain underlying inflation rate in the economy. Underestimating the significance of monetary policy and exchange rate developments One problem when criticizing monetary policy with reference to the current economic situation is that one does not take into account the fact that the current strong Swedish economy is of course to a large degree due to the monetary policy that has been conducted. It is a little like taking medicine in connection with an illness and when cured drawing the conclusion that it was unnecessary to take the medicine. On this point I feel that the events of spring 2015 are a good illustration. The ECB had announced in January that it intended to buy securities over slightly more than a year to come for the equivalent of SEK 10,000 billion (around 2.5 times the size of Swedish GDP). This is indeed a very substantial monetary policy intervention. Within the course of just a few weeks the krona exchange rate appreciated significantly against the euro, from almost 9.65 krona per euro to just over 9.10. This was in itself a large appreciation of almost 6 per cent, but the real danger lay in the fact that it could have been much worse. During 2014 and up to spring 2015 the US dollar and the British pound sterling had appreciated by between 15 and 25 per cent against the euro.