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Swedish Krona Slumps as Rate Cuts Imminent, Confidence Wanes

Aug. 29 (Bloomberg) -- Sweden’s krona slumped to a four-week low against the euro after the country’s National Institute of Economic Research predicted the central bank would need to lower interest rates to 1 percent this year.

Sweden’s central bank will cut its main lending rate to support an expansion, the institute said today. The krona weakened the most in more than seven weeks against the dollar as a separate report from the institute showed its Swedish manufacturing confidence index fell to minus 9 in August from a revised minus 3 the previous month. A gauge of consumer confidence fell to 5.4 from 5.6 in July, the NIER said. Economists predicted confidence would rise to 5.7, according to the median of 12 forecasts.

“We agree with the NIER that the Riksbank needs to cut rates, and has room to do so,” said Carl Hammer, chief foreign-exchange strategist at SEB AB in Stockholm. “Now that manufacturing confidence has plummeted, the biggest worry for the krona is a continuation of worse than anticipated data.”

The krona fell 0.5 percent to 8.3435 per euro as of 3:21 p.m. in London, after dropping to 8.3715, the weakest level since Aug. 1. The Swedish currency slid 0.8 percent to 6.6636 per dollar, after tumbling by as much as 1 percent, the biggest intraday decline since July 6.

The Riksbank will keep its repurchase rate at 1 percent next year, compared with the current rate of 1.50 percent, NIER said. It will return the rate to 1.50 percent by the end of 2014, the institute predicted. Policy makers at the Swedish central bank will announce an interest-rate decision on Sept. 6.

The krona has appreciated 5.9 percent in the past three months, the best performer of the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar has declined 3 percent and the euro has fallen 2.7 percent.

To contact the reporter on this story: Stephen Treloar in Oslo at streloar1@bloomberg.net Eleanor Lawrie in London at elawrie@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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