Riksbank Rate Policy Is Propping Up Krona, Sweden’s Borg Says

Sweden’s Finance Minister Anders Borg said the Riksbank’s monetary policy is propping up the krona and preventing the exchange rate from helping to sustain an expansion in the largest Nordic economy.

Because of high consumer debt levels “monetary policy in Sweden as a whole perhaps is a little bit tighter than in other countries and it’s clear that this supports the exchange rate,” Borg said in Stockholm today. “Given the weak economic development it would have been an advantage if the krona had weakened somewhat, that’s clearly the case.”

Sweden’s $500 billion economy is stalling as some of the biggest companies, including TeliaSonera AB, have cut thousands of jobs to adjust to a plunge in demand from the debt-burdened euro area. Sweden emerged as a haven last year from the debt crisis, boosting the krona to a 12-year high versus the common currency in August. Over the past 12 month, it’s up 0.75 percent against the euro and 3.7 percent against the dollar.

The krona slid 0.4 percent to 8.7131 per euro and weakened 0.5 percent to 6.5499 per dollar as of 11:27 a.m. in Stockholm. The krona has lost 1.5 percent this year against the euro.

Sweden’s central bank last month cut its repurchasing rate for a fourth time in a year, bringing it to 1 percent, and indicated it has finished easing policy. The European Central Bank’s rate is 0.75 percent, while the Federal Reserve’s benchmark hovers close to zero.

Economic Outlook

Swedish central bank Deputy Governor Lars E. O. Svensson, who has called for deeper rate cuts, said this month that easing policy would have the benefit of weakening the currency.

“If the krona is strong, all else equal, that’s yet another reason to lower the rate,” while inflation and unemployment remain the important arguments for further cuts, Svensson said on Jan. 16. “It’s obvious that the economy would manage better in this very difficult, weak economy with a lower rate and a weaker krona.”

Borg last month cut his economic outlook for this year to 1.1 percent, versus an earlier estimate for 2.7 percent. He said today that the government has room for a more expansionary fiscal policy this year and next as growth will be “very weak.”

Sweden will post a 1.3 percent deficit of gross domestic product this year, more than double its previous estimate, it said last month. The government in September said it will spend about 0.7 percent of gross domestic product on new initiatives this year including infrastructure, research and a corporate tax cut to 22 percent from 26.3 percent.

Riksbank policy makers, including Governor Stefan Ingves, have warned that domestic credit growth poses a risk to the economy. Household debt has risen to a record 173 percent of disposable incomes last year from 90 percent in the mid-1990s to finance rising property prices.

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