Riksbank’s inflation target questioned by former Deputy Governor Thomas Franzén in recent documentary

The Riksbank’s inflation target has long been set at two percent, a benchmark that has influenced Sweden’s interest rates for decades. When inflation fell below this threshold, the Riksbank frequently reduced interest rates to boost consumer spending. This has led to Sweden maintaining some of the lowest interest rates globally for an extended period.

In a recent documentary, former Riksbank Deputy Governor Thomas Franzén shared that the two percent target, established in the 1990s, was set without in-depth analysis. “We didn’t believe it was an eternal truth. Yet, this belief in two percent intensified over time, and now, 30 years later, it remains,” he stated.

Sweden’s low interest rates were part of a global trend throughout the 2010s. The documentary highlights that Swedish households have increasingly taken on debt, becoming among the most indebted in the world, surpassing households in the U.S., Eurozone, and the UK. Years of declining interest rates made borrowing inexpensive, leading to significant investments primarily in housing. “The money has mainly gone into buying homes, which offer different returns compared to business investments,” noted Fredrik NG Andersson, an associate professor in business economics.

Franzén criticized central banks for irresponsibly promoting low rates, saying they must acknowledge mistakes and adapt their strategies, even if it risks public backlash.

The Riksbank employs interest rate adjustments as a tool to influence inflation, aiming to create predictability and stability in price development.