Sweden's Krona Weakens; Inflation Slows, Sapping Pressure on Central Bank

Sweden’s krona weakened versus the euro and the dollar as a measure of inflation was less than forecast in March, reducing pressure on the central bank to step up the pace of interest-rate increases.

Sweden’s currency depreciated against most of its 16 most- traded peers. Inflation adjusted for mortgage costs was an annualized 1.5 percent, statistics today showed, below the 1.7 percent median estimate in a Bloomberg survey of economists.

“There were some people in the market betting on a weaker krona on the back of the softer CPI,” said Henrik Gullberg, a London-based currency strategist at Deutsche Bank AG, the world’s biggest foreign-exchange trader.

The krona was 0.8 percent weaker versus the euro at 9.1158 as of 4:05 p.m. in London. It lost as much as 0.9 percent to 9.1235 against the 17-nation common currency, the weakest level since Dec. 14. The Swedish currency depreciated as much as 1 percent against the dollar before trading 0.6 percent weaker at 6.2998. It reached 6.1851 yesterday, its strongest level against the dollar since Aug. 8, 2008.

So-called headline inflation accelerated to 2.9 percent, exceeding the central bank’s 2 percent target for a fourth month, from 2.5 percent in February, Statistics Sweden said today. That was in line with estimates.

The Stockholm-based Riksbank has raised its key rate five times since July, bringing it to 1.5 percent in February from a record low of 0.25 percent. The bank is trying to prevent Europe’s fastest-recovering economy from overheating and contain inflation. Policy makers will keep tightening monetary policy, Gullberg said.

“The hawks on the Riksbank board haven’t really justified hikes on the basis of worryingly high inflation,” Gullberg said. “It’s been more a case of a strong real economy that gives them an opportunity to normalize policy.”

Riksbank Governor Stefan Ingves has said he can’t rule out raising rates at all five remaining policy meetings this year. The bank will announce its next decision on April 20.

To contact the reporter on this story: Keith Jenkins in London at kjenkins3@bloomberg.net;

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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