SEB AB Chief Executive Officer Annika Falkengren said an intervention in the currency market by Sweden’s central bank would be at odds with the country’s floating exchange rate regime.
“I was very surprised when I heard” of the Riksbank’s threat to intervene, Falkengren said in an interview in Stockholm after presenting the fourth-quarter earnings report for the Nordic region’s second-largest currency trader.
“I was there in 1992 when Sweden devalued,” she said. “Since then, I thought that Sweden had a floating exchange rate. If you have a floating exchange rate, that’s what you have. Then that fits very strangely with doing currency interventions.”
Central bank Governor Stefan Ingves has had to defend the bank’s decision to prepare for a currency intervention amid concern over its legal mandate. In an interview on Feb. 2, Ingves said that there are no limits “in the law” and that “as long as currency interventions are carried out for a monetary policy purpose, we can do it.”
The debate ignited last month after a review of Swedish monetary policy, co-written by former Bank of England Governor Mervyn King, said there was a need to make clear in the Riksbank law that any decisions on the exchange rate regime “is a matter for government.” The government has countered that it is prepared to look into clarifying details in the currency framework of the largest Nordic economy.
The Riksbank was forced to consider interventions after previous measures, including cutting the repo rate well below zero and purchasing government bonds, failed to have the desired effect. SEB’s Falkengren said that while it has become cheaper for companies to borrow, policy hasn’t worked the way it was envisaged by the central bank.
“We would have hoped that the wheels would turn more quickly but they don’t,” Falkengren said. “The medicine that’s been added isn’t helping, the wheels don’t seem to be turning very much more quickly.”