STOCK MARKET WATCH -- Wednesday, 29 October 2014

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23. How Sweden Joined Central Banking’s Hall of Shame

http://www.bloomberg.com/news/2014-10-28/how-sweden-joined-central-banking-s-hall-of-shame.html


European policy makers have been their own worst enemy in the fight to avoid recession and deflation.

Swedish central bankers’ decision to cut the benchmark interest rate to zero was the latest evidence that moving too fast to remove emergency stimulus is a risky business.

“They’ve blown it,” Nariman Behravesh, chief economist in Lexington, Massachusetts, for consultants IHS Inc., said, referring to policy makers in Europe. “The focus is exclusively on deficit, on debt, on keeping inflation under control. They’ve ignored the threat of deflation and recession.”

Sweden’s not alone in having to reverse tack. The European Central Bank raised rates in 2008 and twice in 2011 to combat inflation that quickly evaporated, and the euro area now faces its third recession in six years. They echoed mistakes made by the Bank of Japan in 2000, when policy makers raised the key rate only to cut it six months later as deflation set in.