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Sweden’s Ingves Predicts Taper in Krona Gains to Drive Inflation

Oct. 24 (Bloomberg) -- The effect of an appreciating currency is disappearing from Sweden’s inflation gauge, helping the central bank reach its price target, Governor Stefan Ingves said.

“The appreciation effect is sort of tapering out and that means that, in terms of lower import prices, that disappears gradually,” Ingves said today in an interview in Stockholm. “That’s also one of the reasons why the inflation rate is going to go up in the future.”

The Riksbank kept its repurchase rate at 1 percent today and predicted inflation won’t reach its 2 percent target until the end of 2014. That will allow the bank to start raising rates at that time, it said.

The krona, which in June reached its weakest level against the euro in a year, is now not a “major issue” for the Riksbank, Ingves said. “The krona has lately been fairly stable and we expect it to be that way.”

Sweden’s krona has appreciated 4.2 percent this year, according to Bloomberg Correlation Weighted Indexes, which measure a basket of 10 developed-nation currencies. That’s close to a 4.5 percent appreciation over the same period in the Swiss franc, according to Bloomberg data.

The krona will strengthen gradually, rising about 2 percent against a trade-weighted basket of currencies in the three years through November 2016, the Riksbank estimates.

The currency lost more than 30 percent against the euro between Dec. 21, 2006, and March 5 when it weakened to a low of 11.6838. It has since strengthened more than 33 percent trading at 8.7656 as of 1:49 p.m. in Stockholm today.

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

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

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