Riksbank Tracking Crisis Sees Europe Recovery Starting in 2013

Europe’s debt crisis will continue to dictate monetary policy decisions in Sweden, where Riksbank First Deputy Governor Kerstin af Jochnick says an improvement in the euro area’s plight is unlikely until some time during 2013.

“We have said for a long time that the development in Europe perhaps is the most important, since the Swedish export market to a large extent is in Europe,” af Jochnick said in an interview in Stockholm late yesterday. “They will find lasting help and they will be able to solve the acute problems in the long term, but it will take time and things will not improve until during next year.”

The Riksbank left its benchmark repo rate unchanged at its July meeting and scaled back its tightening plans as the debt crisis in Europe drags on. The bank will probably need to lower its main rate from 1.5 percent next year, according to a Riksbank survey of money market participants published Aug. 15.

The Riksbank has also come under pressure from industry groups urging policy makers to lower rates and stem the krona’s appreciation. The bank should lower the repo rate by at least a quarter of a percentage point to 1.25 percent at its meeting in two weeks after the krona soared to a 12-year high against the euro this month, according to Sweden’s trade council and executives at industrial companies including Svenska Cellulosa AB (SCAB), Holmen AB (HOLMB) and Setra Group AB.

Sweden shipped 71 percent of its 1.21 trillion kronor ($181 billion) in exports to Europe last year, government figures show. Half of Swedish output is derived from exports.

To contact the reporter on this story: Johan Carlstrom in Stockholm at jcarlstrom@bloomberg.net

To contact the editor responsible for this story: Jonas Bergman at jbergman@bloomberg.net;

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