Higher interest rates test resilience

Low interest rates have contributed to high risk-taking, rising asset prices and increasing debt. Higher interest rates in the next few years could reduce risk-taking and thus dampen the build-up of risk. However, unexpectedly large interest rate fluctuations and uncertain global developments could also test the financial sector’s resilience. These are some of the conclusions Finansinspektionen (FI) draws in this year’s second report on the stability in the financial system. The report will be presented at a press conference today.

The Swedish economy continues to be strong but is now showing signs of a slow-down. The resilience in the Swedish financial system is satisfactory in general, but continued high growth in debt fuelled by lending and investments related to residential property and commercial real estate require monitoring, writes FI in its report.

Interest rates are expected to rise in the next few years, and this should lead to a slow-down in both risk-taking in the financial markets and growth rates for debt. A controlled return to more normal interest rates is therefore good for stability in the financial system, states FI.

However, due to the prolonged period of low interest rates, there is considerable uncertainty about the size of any vulnerabilities that may have been accumulating. House prices have stabilised after a recent fall, but they are still high.

"When this unique environment changes, there is a risk that unexpected reactions could cause problems. We have implemented resilience-enhancing measures, but we need to continue to be cautious," says FI's Director General Erik Thedéen.

FI's Stability in the Financial System will be presented by Director General Erik Thedéen and Chief Economist Henrik Braconier at a press conference today.

Time and date: Tuesday, 27 November, 10:00 a.m.
Location: FI's premises at Brunnsgatan 3, Stockholm.

The press conference is only for representatives from the media, but will be broadcast live on FI's website, fi.se.

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