Swedish Krona Still Too Strong After QE, Central Banker Says

Sweden’s krona is moving in the wrong direction with the threat of a major appreciation putting economic growth forecasts at risk, according to Riksbank Deputy Governor Per Jansson.

The bank needs to be prepared to prevent excessive appreciation before it’s “too late,” he said in Stockholm on Thursday.

“The development is in the wrong direction and it’s been going on for some time, and I think that’s worrying,” Jansson told reporters in the Swedish capital. “We can’t wait for the forecast to be revised because the damage will already have been done.”

The krona pared gains as big as 0.5 percent against the euro earlier in the day and traded 0.1 percent higher at 9.1585 as of 4:14 p.m. local time.

Sweden’s krona is the strongest performer, besides the yen, of the 10 currencies tracked in Bloomberg correlation weighted indexes over the past year. The Riksbank this month extended its bond purchase program in an effort to drive down longer yields and prevent the currency from appreciating further. Its main repo rate was kept at minus 0.5 percent.

Jansson said the krona is gaining faster than the Riksbank had forecast and that he had hoped for a weaker rather than stronger currency following the announcement of additional quantitative easing measures on April 21.

“When it comes to the exchange rate, things could happen very quickly,” Jansson said. “I’ve been very much affected by what happened in February, March,” when the krona gained about 3 percent against the euro from peak to trough. “If that were to happen then all of the talk about 4 percent growth can be forgotten.”

The bank’s six-member board last week signaled a growing willingness to accept a stronger krona. Jansson cautioned against interpreting the latest policy steps as a sign that the Riksbank’s toolbox is close to empty.

“People talk about monetary policy having passed its expiry date, the end of the road and all of that, but that’s a description of the situation that’s not at all correct,” he said. “We’re very clear about our preparedness being high and that we’re on our toes to take further measures. We’re talking about that we can cut rates next time rather than raising while the market is talking about when will they tighten.”

A report by former Bank of England Governor Mervyn King in January recommended the Riksbank be allowed to stray from its inflation target of 2 percent.

“In the short-term I’m seeing very little effect on us from that report,” Jansson said. “We’ve been very clear about that, given the situation we’re in, we see no possibilities to manage anything but inflation.”

Jansson reiterated that the Riksbank is prepared to cut rates and expand government bond purchases if needed to boost prices. 

“We could eventually also consider buying other types of securities,” he said. “There are covered bonds, municipal paper and other things that one can consider. We don’t wish to do any of this but we need to adjust to the circumstances and if the risks are big we must think about how we should deal with it.”

Jansson repeated threats of currency interventions amid uncertainty over to what extent the law supports such a move given Sweden’s floating exchange rate.

Swedish Finance Minister Magdalena Andersson on Thursday also said that a review will look at the Riksbank’s mandate to carry out interventions.

While Riksbank has the right to intervene, it’s parliament that sets the exchange rate regime, Andersson said in an interview. The boundary between the Riksbank’s right to carry out interventions and the fact that it “doesn’t have right to change its exchange rate regime” will be included in a review of the Riksbank law planned for this summer, she said.

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