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Riksbank chief ‘unfazed’ by strong krona

The Swedish currency has hit a six-month high against the euro, with Riksbank head Stefan Ingves telling a parliamentary committee that the exchange rate was nothing "out of the ordinary".

Published: 7 March 2013 12:38 CET

Riksbank chief 'unfazed' by strong krona

The krona rose 0.36 percent against the euro to 8.2996, the highest level since August 29th 2012, reported Bloomberg News.

Sweden’s export-heavy economy is sensitive to fluctuations in the value of the krona.

Ingves appeared at a meeting of the parliamentary finance committee on Thursday to take questions from committee members.

VIDEO: Parliamentary finance committee meeting with Riksbank representatives (in Swedish)

“We have, since the mid-1990s, worked on the principal that it is not technically possible nor desirable to fine tune inflation in the short-term, which could lead to fluctuations.”

In January, the Riksbank decided to keep the benchmark interest rate at 1 percent. Not all of its board members agreed with the decision. Karolina Ekholm wanted the central bank to cut the key repo rate to 0.75 percent, with Lars E.O. Svensson advocating a drop to 0.5 percent.

At the time, Ingves cited rising consumer confidence as a reason to keep the rate unchanged.

“The unease on the financial markets has declined, and households and companies, both in Sweden and abroad, have become slightly more optimistic with regard to the future,” he said.

Bloomberg reported on Thursday that Swedish consumer confidence was up in February.

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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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