Sweden's long-term neutral rate now in 1.5%-3% range, Riksbank says
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COPENHAGEN, Nov 26 (Reuters) -The Swedish central bank estimates that a long-term neutral interest rate, and thus its long-term normal policy rate, is probably between 1.5% and 3%, Riksbank Deputy Governor Anna Seim said on Tuesday.
The Riksbank said in 2017 that the neutral rate - which varies depending on factors such as economic output, demographics and other economic variables - was somewhere between 2.5% and 4%. Since then it has said it was probably below that level, but without giving a specific range.
Knowing what the neutral rate is key for central banks as it helps them estimate how to adjust monetary policy so that it either stimulates or dampens demand in the economy.
"The neutral interest rate is thus assumed to remain at historically low levels," Seim said. "This means, for instance, that one cannot rule out the possibility that the policy rate may periodically need to be lowered to levels around zero."
According to economists, neutral rates have been falling since the 1980s due to globalisation, an ageing population and other factors.
However, huge investment needed to counter the effects of climate change as well as factors such as growing protectionism could point to the trend reversing to some extent.
Sweden's interest rate regularly hit 10% in the 1980s and early 90s but have been trending down ever since.
In 2015, the Riksbank cut rates below zero - something that had been considered unthinkable previously.
The policy rate remained negative until 2019 and only rose above zero in 2022 during a spell of global monetary tightening to counter the post-pandemic inflation surge. At its most recent meeting in November, the Riksbank cut its policy rate to 2.75%.
Reporting by Louise Breusch Rasmussen, editing by Terje Solsvik and Tomasz Janowski
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