(Adds FSA chief comment, background)
STOCKHOLM Dec 1 Generous tax breaks and
ultra-low interest rates have created a "greenhouse" for debt in
Sweden, and politicians and central bankers need to do more to
curb its growth, the country's financial watchdog said on
Swedish house prices and household debt have risen rapidly
in recent years, helped by low interest rates and generous tax
deductions on mortgages. That has led the International Monetary
Fund and the European Commission to warn about threats to
"We are in a unique situation, with negative rates and high
economic growth," said Erik Thedéen, head of the Swedish
Financial Supervisory Authority (FSA). "We have an environment
that can be described as a greenhouse for growing debt."
Despite economic growth of 4.1 percent in 2015, the Swedish
central bank cut its repo rate into negative territory early
last year and has since reduced it further, to a record low of
-0.50 percent. It is worried about inflation, which has
undershot its 2 percent target for years.
The central bank was widely criticised for "leaning against
the wind" in 2010 and 2011 and raising rates because of worries
about the housing market. But Thedeen said the focus on
inflation had become too narrow.
"We should think about whether there are other paths for
monetary policy, which also takes this (rising debt) into
account," he said.
He also called on politicians to phase out generous tax
breaks for mortgages, something the central bank has advocated
"We have a tax system that fuels rising debt. It is such a
clear conflict with our goals that we have a responsibility to
point this out," Thedeen said.
The FSA said earlier on Thursday in its biannual financial
stability report that the financial system is robust and that
the country's banks are well-capitalised, but imbalances are
threatening to build up.
Sweden has one of Europe's biggest financial sectors
relative to the size of its economy.
(Reporting by Johan Ahlander, editing by Simon Johnson, Larry