Due to high inflation and increasing interest rates, Sweden’s financial stability is strained and the risks are increasing, the country’s central bank (Riksbank) said in a report.
“We have had many years of low inflation and low interest rates. This has increased risk-taking in the financial system and the economy in general,” Riksbank Governor Erik Thedeen said at a press conference held in connection with the release of the bank’s latest Financial Stability Report.
Since 2021, global inflation has been high and tightened monetary policy with rate hikes has followed in its wake, reports Xinhua news agency.
According to the report, this has put pressure on property companies facing increasing funding costs, with many having large borrowing needs at a time when the value of their properties is falling.
The report also points to the major problems faced by banks in the US and Switzerland earlier this spring.
“This illustrates how vulnerabilities can be exposed when economic conditions change rapidly and unexpectedly, and how difficult it is to predict where problems will arise,” the report said.
Household indebtedness, which has steadily increased in Sweden due to years of low interest rates, and increasing property prices are also worrying the Riksbank as these “may entail risks for the stability of the macroeconomy, and in an unfavourable scenario, for financial stability”.
According to Statistics Sweden, year-on-year inflation in the country stood at 10.5 percent in April.
Although slightly lower than the 12 per cent recorded in February, Sweden had then seen eight consecutive months with an inflation rate above 10 per cent.
To curb inflation, the Riksbank has since May 2022 repeatedly raised the policy rate all the way up to the current 3.5 per cent, following more than seven years, when the rate was kept at or below zero.
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