Sweden is borrowing at record low rates as their economy has remains relatively untouched by the crisis.Wednesday, 11 January 2012
Sweden is at this moment borrowing at record low rates. While many EU countries are forced to pay exorbitant interest rates Swedish state borrows for free.
“But the low interest rates is not good for Sweden in the longer term,” said Bo Lundgren, head of the Swedish Debt Office.
When there is turbulence in the financial markets investors seek a safe haven. At the moment the entire euro zone is seen as a high risk area. It has caused many to invest in Swedish government securities.
AdvertisementOnly two countries in the world , Japan and Switzerland, have lower interest rates on their ten-year government bonds. The Swedish rate is just over 1.5 percent. In practice this means a negative real interest rate, thus the actual rate, the Riksbank's inflation target of 2 percent is achieved.
“This is a unique situation that we have not had any time since the Riksbank started to keep statistics on interest rates in 1888,” said Robert Bergqvist, chief economist at SEB.
Interest rates on government securities will include reflecting expectations of market rates. The record low interest rates will thus benefit both government and households and businesses.
“This is a very good opportunity for the government to borrow to make investments in infrastructure, for businesses to make long term investments and households to make investments in the housing market,” said Robert Bergqvist.
Debt Office, the authority that manages the Swedish central government debt, also sees a very bright situation.
“The low interest rates show that the Swedish government is desirable. This means that the interest cost for the Swedish national debt will be lower and that we have a stable Krona,” said Bo Lundgren.
In the past the Swedish currency was affected by the euro when it was hit by mistrust. Today, the current remains strong even when the euro is taking a beating.
Lundgren also stresses that there is a well-functioning market for the Swedish government securities, despite the fact that the Swedish currency is so small.
“My colleagues of the National Debt Office are world leader in debt management. This has meant that they made investors know when those Swedish government securities are easy to sell,” he says.
The explanation for the historically low interest rates is that governments, businesses and individuals have changed their behaviours since Sweden came out of a real danger with the inflated Swedish economy 1992.
“We learned our lesson after the property crisis, not all other countries could learn from us,” said Bo Lundgren.
Now he is also raising a warning finger to the very low interest rates.
“It is fair to those who buy government securities in that they may get some real return. The outside world will of course eventually recover and get lower interest rates on their government securities too,” said Lundgren.
By Scancomark.se Team
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