Stability in the Financial System (2022:2)

2022-11-29 | Reports Stability Markets Insurance Bank

High inflation has led to rapidly rising interest rates. Given the current rapid change in conditions, both participants on the financial markets and borrowers need to transition quickly. In the short term, this means elevated risks and greater uncertainty. The already high risks in the commercial real estate sector have continued to increase.

Overall, threats to financial stability risks in the immediate future have increased. If the high inflation persists to a point that interest rates continue to rise for a long period of time, this will place a clear burden on both households and firms. Such a scenario entails a greater risk of problems arising even in the financial sector.

But if inflation can be limited and the interest rates can be stabilised, risk-taking and debt build-up among households and firms and in the financial system could also be dampened. This could lead to a decrease in the risks to financial stability compared to the prolonged period of very low interest rates. How inflation and interest rates develop going forward thus has a major impact on the risks to financial stability.