Sweden's Central Bank Is Already Fighting the Next Bubble
As many writers and readers on DailyFinance have often noted, while consumer prices have remained low lately, other prices are increasing rapidly. Yet central banks in the U.S., the eurozone, Japan and the U.K. are keeping interest rates at record-low levels with aggressive loose monetary policies that critics say could lead to damaging new bubbles as standard inflation gauges fail to capture asset-price growth.
In Sweden, the situation is no different: Inflation there remains below the bank's 2% target. But housing prices have moved above pre-crisis levels, rising for a 19th consecutive month in November and gaining at an annual rate of 5%, Bloomberg reports. Meanwhile, credit is growing at a 9% rate. In response, The Riksbank has actually raised its repurchase agreement rate four times since July, to 1.25% in December, trying to slow credit and economic growth in an effort to prevent another boom in house prices.
Not all policymakers in Europe and the U.S. agree with the current low-rate policies, and some have been quite vocal about their concerns. Kansas City Fed President Thomas Hoenig, who has consistently voted against the Fed's loose monetary policy, said this month that a "continued high level of monetary accommodation" could "destabilize the economy."