Renminbi strengthens further despite gains by dollar

The renminbi on track for a fourth day of firming against the dollar on Wednesday after China’s central bank once again pushed the currency’s trading band (marginally) stronger. The onshore exchange rate (CNY) for the reniminbi was 0.28 per cent stronger at Rmb6.8855 in afternoon trade, bringing it 0.53 per cent firmer since it last […]

Continue Reading


Nomura rounds up markets’ biggest misses in 2016

Forecasting markets a year in advance is never easy, but with “year-ahead investment themes” season well underway, Nomura has provided a handy reminder of quite how difficult it is, with an overview of markets’ biggest hits and misses (OK, mostly misses) from the start of 2016. The biggest miss among analysts, according to Nomura’s Sam […]

Continue Reading


Spanish construction rebuilds after market collapse

Property developer Olivier Crambade founded Therus Invest in Madrid in 2004 to build offices and retail space. For five years business went quite well, and Therus developed and sold more than €300m of properties. Then Spain’s economy imploded, taking property with it, and Mr Crambade spent six years tending to Dhamma Energy, a solar energy […]

Continue Reading


Euro suffers worst month against the pound since financial crisis

Political risks are still all the rage in the currency markets. The euro has suffered its worst slump against the pound since 2009 in November, as investors hone in on a series of looming battles between eurosceptic populists and establishment parties at the ballot box. The single currency has shed 4.5 per cent against sterling […]

Continue Reading


RBS falls 2% after failing BoE stress test

Royal Bank of Scotland shares have slipped 2 per cent in early trading this morning, after the state-controlled lender emerged as the biggest loser in the Bank of England’s latest round of annual stress tests. The lender has now given regulators a plan to bulk up its capital levels by cutting costs and selling assets, […]

Continue Reading

Sweden dives deeper into negative territory

Posted on February 12, 2015

The headquarters of the Riksbank, Sweden's central bank, stand in Stockholm, Sweden, on Thursday, Nov. 29, 2012. Sweden's Riksbank is unlikely to back proposals for a cap on banks' foreign borrowing even after the government and regulator warned that the industry is too reliant on international funding markets. Photographer: Casper Hedberg/Bloomberg©Bloomberg

In global currency wars, one of the smaller players has just fired a very big weapon.

Sweden’s Riksbank on Thursday became the first central bank to move its main repo rate into negative territory — by 10 basis points to -0.1 per cent — and launch quantitative easing.

The move followed four rate cuts in 18 days from the Danish central bank, which has cut its deposit rate – levied on money parked at the central bank – to a record low of -0.75 per cent. The actions of Sweden’s central bank are raising wider questions about what appears to be a worldwide race to the bottom for interest rates.

You need JavaScript active on your browser in order to see this video.

No video

The Swedish and Danish rate cuts come just weeks ahead of the start of the European Central Bank’s QE programme and weeks after the Swiss abandoned the defence of their currency.

Gary Jenkins, chief credit strategist at hedge fund LNG Capital, said the Swedish and Danish moves highlighted the difficulty for small, independent central banks in resisting pressure from the likes of the ECB, US Federal Reserve and Bank of England.

    “It’s almost like a tidal wave. Even though you have got a firm hold, there is a huge amount washing over you. Yes, they are independent. Yes, they can do what they want. But the truth is that in this very co-ordinated macro world that we live in it is very difficult to be properly independent,” he said.

    The scale of the Riksbank’s actions surprised the markets, with the Swedish krona falling to a six-year low against the dollar.

    The Swedish central bank was the first to raise rates after the global financial crisis, to 2 per cent in 2011. But inflation soon began to slide – headline rates have been negative for most of the past two years in Sweden – leading to heavy criticism from the likes of Paul Krugman, the economist, and a reversal of the rate rises.

    Now the Riksbank has taken a leap into the unknown with its rate cut and said they could fall further, depending on the reaction from banks and the public. Some economists worry that people could start hoarding cash if rates remain negative.

    The Riksbank also announced the purchase of a modest SKr10bn in government bonds but said it was ready to “act quickly where necessary” even between normal monetary policy meetings.

    Reaction was mixed. Mikael Sarwe, head of strategy in Sweden for bank Nordea, said: “This smells like a central bank that is panicking. It is very hard to understand [their actions] when you look at the economy with GDP at 2 per cent, employment rising by 1.5-2 per cent, house prices rising by 15 per cent, credit growth booming; all this says that you should not stimulate the economy any more.”

    Janet Henry, European economist at HSBC, said the Swedish and Danish central banks had made a “pre-emptive strike” ahead of the ECB’s QE launch in March.

    “These are very small players on the global stage and that is why we are seeing action sooner rather than later,” she said.

    The Riksbank said there were signs the drop in inflation had bottomed out and consumer prices would rise gradually. But it appeared worried that low inflation expectations could become entrenched, a potential problem for forthcoming wage negotiations.

    Mr Sarwe said the Riksbank’s move could have the opposite effect. “In doing this, they might be pushing inflation expectations down even more because they are signalling to the population ‘we have a huge inflation/deflation problem’.”

    Economists expect the Swedish cut to put further pressure on neighbouring central banks to do likewise. Norway is likely to cut rates next month despite fears of a housing bubble and it being one of the few countries to have inflation close to its target.

    Oystein Olsen, Norges Bank governor, said: “We are a small, open economy. Our monetary policy is affected by what is happening abroad. To explain why Norwegian rates have been so low for such a long time, the short answer is that rates internationally are so low.”