Royal Bank of Scotland Group Plc (RBS) says lenders in Sweden have chosen the ‘worst’ moment to tighten lending standards in Scandinavia’s biggest economy. A decision by the Swedish Bankers’ Association last week to force homeowners to amortize all new mortgages that are in excess of 50% LTV risks hurting demand in an economy already grappling with disinflation and its associated risks, according to Par Magnusson, RBS’s chief economist in Stockholm.
“I can’t envision a worse timing when we have an economy with such low inflation, a depleted monetary policy, a big output gap in the economy,” Magnusson reportedly told Bloomberg, adding, “tightening is exactly the opposite of what this economy needs.”
Inflation has been less than the Swedish Riksbank’s 2% target for almost three years, prompting Nobel Laureate Paul Krugman in April to warn that Sweden faces a Japan-like deflation trap. Three months later, the Riksbank cut its main interest rate by 50 basis points to 0.25%.
Of those borrowers with mortgages that are less than 75% of their property’s value, only 40% are currently paying down their debt, according to a 2013 report by the Swedish Financial Supervisory Authority.