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CURRENCY

Krona at weakest level in six years

The value of the Swedish krona dropped further in overnight trading ahead of Wednesday’s opening of markets in Europe, trading at 10.15 kronor per euro and 7.95 kronor per US dollar.

Published: 22 October 2008 13:57 CEST
Krona at weakest level in six years
Graphic: Riksbank; Andrzej Pobiedzinski; The Local

Sweden’s currency has weakened by 12 öre against the euro and 36 öre against the dollar since Tuesday afternoon and is now trading at levels not seen since 2002.

“It’s a result of technical factors. It doesn’t have anything in particular to do with news from Sweden, but rather is a reflection of the financial uncertainty,” said Robert Bergqvist, the chief economist with SEB bank, to the TT news agency.

According to Berqvist, the dollar’s surge in value relative to the krona is a result of large capital flows heading back into the United States as different financial institutions have made adjustments in their portfolios.

“And that means there’s more demand for dollars. When you have powerful movements against the dollar, the krona to euro [exchange rate] usually follows suit. There’s nothing specific,” he said.

Nevertheless, Bergqvist describes the drop in the krona’s value as rather large.

“If you put it in perspective with what’s happened in recent months, it’s a pretty strong shift we’ve just had, in particular against the dollar,” he said.

The krona hasn’t been this weak since the summer of 2002, according to the Total Competitiveness Weights (TCW) index which measures the krona’s value against a basket of other currencies.

“And the fall against the dollar will likely continue,” said Swedank currency analyst Karl-Johan Bergström.

The reason is that the outlook for the global economy has weakened substantially, which causes investors to move their money to dollar-denominated investments.

He adds that the krona’s weakening against the euro is due to the fact that Sweden’s growth forecasts have been lowered further than that of the Eurozone.

“This is been happening continuously for the last six months,” said Bergström.

However, he thinks that the krona’s drop against the euro has started to go too far.

“Against the euro, the krona feels undervalued now,” he said.

He doesn’t think the unusually weak krona will have any large effects on inflation or Swedish exporters ability to sell more their wares abroad.

“It could strengthen exports but at the same time demand is weak,” said Bergström.

And when it comes to inflation, Bergström believes that the falling price of raw materials will counteract any rise in import prices, which one might expect to also generate domestic inflationary pressures.

“The net result ends up being that inflation drops back,” he said.

In addition, belives Bergström, the Riksbank has other considerations besides inflation ahead of Wednesday’s interest rate decision, which will be made public on Thursday.

ECONOMY

Riksbank deputy ‘open to reconsidering raising rates in April’

Martin Flodén, the deputy governor of Sweden's Riksbank, has questioned whether the central bank needs to bring in further rate rises in April, following bank runs on two niche banks in the US and a crisis of confidence at Credit Suisse.

Published: 16 March 2023 16:20 CET
Riksbank deputy 'open to reconsidering raising rates in April'

Uncertainty in the financial market following bank runs in the US and a crisis at Swiss bank Credit Suisse could have changed the playing field, he told TT in an interview. 

“It affects which level the key interest rates need to be in order to have a contractive effect,” he said, referring to the recent days of financial market turbulence. “We can’t just look at key interest rates by themselves. It’s the key interest rate in combination with all of these developments which determines how tight financial policy will be.”

He said it was not yet obvious what decision should be taken. 

“It’s clear that monetary policy needs to stay tight, but what level of interest is that? We need to assess all of the current developments there.” 

‘Could go in different directions’

In theory, there could be such a serious financial crisis, with such a severe effect on lending and banks’ financing costs, that the central bank would be forced to adopt supportive measures, even lowering the key rate.

Flodén doesn’t think Sweden is in that situation, although he thinks there’s a possibility it could happen.

“It’s not something I can see happening right now, at least, although this could go in different directions.” 

He added that he doesn’t see any reason for any “special concern”, toning down the risk that a crisis for two smaller niche banks in the US and at Credit Suisse could affect the Swedish financial system.

“Of course, it could lead to some stress, but there aren’t actually any particular signs in Sweden, which are worrying me,” he said. 

Flodén is one of six members of the Riksbank executive board, led by Riksbank chief Erik Thedéen, responsible for making a decision on whether interest rates will go up again at the end of April.

The Riksbank has indicated that a rate hike of between 0.25 and 0.5 percent from the current 3 percent rate could be necessary.

Flodén described the most recent inflation statistics for February, where inflation unexpectedly rose to 12 percent, as “not good at all”. So-called KPIF inflation, where the effect of mortgage rates is removed, rose from 9.3 percent to 8.7 percent in January. The Riksbank’s goal is 2 percent.

“It’s clear that inflation is still far too high and that monetary policy needs to be focussed on combatting inflation,” he said, adding that inflation statistics for March will be released before the central bank is due to make a decision on whether to raise rates or not in April.

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