Swedish Krona Weakens to Three-Month Low as Inflation Slows

Sweden’s krona declined to the weakest level in three months against the euro as inflation abated more than estimated, raising the probability of an interest rate cut before year-end.

The krona depreciated as much 0.54 percent against the euro to 8.6735, the weakest level since July 4, and traded at 8.6571 as of 3:06 p.m. in Stockholm. A report showed consumer price growth slowed to an annual 0.4 percent in September from 0.7 percent the prior month, according Statistics Sweden. That compares with a 0.6 percent estimate in a Bloomberg survey.

“Everything points to a prolonged inflation undershoot, which is obviously opening up for more rate cuts,” Carl Hammer, chief currency strategist at SEB AB. Sweden is “moving into a period of relatively weak growth for at least two quarters with a gradual recovery in 2013,” he said.

Sweden’s central bank last month predicted no more cuts after reducing its main lending rate for a third time since December to 1.25 percent to boost flagging growth. The krona has strengthened 5.5 percent against the euro over the past year, pushing import prices lower, as investors buy Swedish assets as a haven from the European debt crisis.

The Riksbank will keep rates unchanged at the next meeting in October, before reducing rates by 25 basis points in December and in February, said Hammer, who recommends clients begin buying kronor at current levels and selling euro.

“The market is discounting too big a probability for a cut so that decision in itself will lend some support,” he said.

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