Sweden’s krona weakened against all major currencies after minutes from the Riksbank’s meeting last month showed that the central bank considered cutting the benchmark rate by twice as much as it did.
The krona weakened 0.5 percent to 8.5769 against the euro and 0.4 percent to 6.5328 against the U.S. dollar at 12:58 p.m. in Stockholm. It also softened against currencies including the Japanese yen, the Australian and Canadian dollar, the Norwegian krone, the Swiss franc and the British pound.
The Riksbank on Dec. 18 lowered its benchmark rate by a quarter of a percentage point to 1 percent -- the fourth cut in a year. While a majority of the members of the central bank’s board voted in favor of that decision, deputy governors Per Jansson and Barbro Wickman-Parak “thought a great deal” about cutting the repo rate by half a percentage point, according to minutes from the Dec. 17 meeting that were published today. Karolina Ekholm would have preferred a cut of 50 basis points, though she didn’t officially enter a reservation.
“What we saw in the minutes was a dovish surprise where two of the four members that have typically driven the rate decisions actually considered a 50 basis point cut,” Richard Falkenhall, a currency strategist at SEB AB in Stockholm, said in a telephone interview today. “While a further cut in February has been part of some expectations, this shows that the possibility of a February cut has increased markedly.”
Sweden is struggling with the fallout from Europe’s debt crisis, which has led to a slump in exports, about 70 percent of which go to Europe. Some of the country’s biggest companies, including TeliaSonera AB and Volvo AB have cut thousands of jobs in an effort to adjust to shrinking markets abroad.
The Riksbank, the world oldest central bank, said on Dec. 18 it expects the rate to be at 1.1 percent in a year versus an October forecast of 1.3 percent. It sees the rate at 1.8 percent by the end of 2014. Two of its six board members, Ekholm and Lars E.O. Svensson, entered reservations against the repo rate forecast in the Dec. 17 meeting, advocating a trough of 0.75 percentage point and 0.5 percentage point, respectively. Svensson also wanted to lower the benchmark to 0.75 percent.
The minutes “strengthen our view that the Riksbank will cut rates again in February by 25 basis points,” Torbjoern Isaksson, chief analyst at Nordea Bank AB, said today. Jansson, who said he had considered a 50 basis-point rate cut, was “previously seen as one of the most hawkish members of the board.”