Swedish Depo Lessons
The clamour for negative deposit rates in the Eurozone has subsided somewhat in the wake of some less-than supportive comments from ECB heavyweights. The euro has recovered accordingly, but we doubt the debate will subside in the near future. Leaving to one side the issues about deflation and unintended consequences, perhaps it is best to look at precedent and see what a negative deposit rate can, and more importantly, cannot do. Often it is the signalling of intent that matters as much as delivery itself, and this is one lesson central banks looking to adopt negative rates (the Fed is also looking at the matter) should learn from the Riksbank, which registered a -0.25% deposit rate between 2009 and 2010.
Read the full report: UBS