Riksbank Minutes Reveal Krona Discussion as Inflation Slows

Minutes from the latest Swedish interest rate decision revealed a growing preoccupation with the krona as the strengthening currency pushes down inflation.

“The members raised the question of the Swedish krona and its significance for the economy and inflation, as well as whether monetary policy should take into account the risk of high debt,” the bank said in the minutes of its last meeting.

“Goods prices have fallen due to the weak development of prices abroad and the stronger krona,” Governor Stefan Ingves said in the minutes. “The world thus appears to be divided in this respect, but the Executive Board can only set one interest rate. While developments abroad and the exchange rate are holding down goods prices, interest-rate policy is helping to push up service prices.”

Sweden’s central bank kept its main lending rate unchanged at 1 percent for a second meeting on April 16 after cutting rates four times since December 2011. The bank pushed back plans for a rate increase to late 2014, citing a strengthening krona and the inability of companies to raise prices because of weak demand. It had previously forecast it would raise rates in the first quarter of next year.

The krona has gained more than 6 percent against the euro since May after the country emerged as a haven from Europe’s debt crisis. Sweden’s public debt was 37.7 percent of gross domestic product last year, compared with the euro-area average of 93.1 percent, according to the European Commission.

Seeking Cuts

Two of the board’s six members, Lars E. O. Svensson and Karolina Ekholm, pushed for a lower rate to boost economic growth hurt by sluggish demand for Swedish exports from Europe. The country exports about half its $500 billion output, of which about 70 percent goes to Europe. Svensson said last week he won’t seek re-election when his six-year term runs out next month, citing a failure to convince the board that deeper cuts would reduce unemployment and lend more credibility to its inflation target.

The Riksbank estimates household debt will swell to more than to 177 percent of disposable incomes next year after almost doubling since the mid-1990s. The bank cut its forecast for inflation to 0.1 percent from 0.4 percent for this year and to 1.4 percent in 2014, from 2.1 percent previously. It predicted the economy will grow 1.4 percent in 2013 and 2.7 percent in 2014.

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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