Sweden Ignores Currency Wars as Krona Surge Welcomed by RiksbankJohan Carlstrom
Sweden is ignoring talk of a new round of currency wars that threatens to dominate Group of 20 talks this weekend.
Central bank Governor Stefan Ingves said the krona’s appreciation has brought it to an appropriate level and predicted the currency’s exchange rate will probably remain where it is.
The krona was today’s best-performing major currency against the euro, the dollar and the yen after the Stockholm-based Riksbank agreed to leave its main interest rate at 1 percent. Nine of the 22 economists surveyed by Bloomberg had estimated policy makers would deliver a quarter-point cut as Swedish exporters struggle to stay competitive.
The krona gained as much as 1.2 percent against the euro and traded 1 percent higher at 8.4754 as of 1:15 p.m. local time. Versus the dollar, the krona soared as much as 1.4 percent. Today’s gains brought the Swedish currency to its highest against the euro since Oct. 1.
“This is an appropriate level of the krona exchange rate,” Ingves said in an interview today, after presenting his bank’s decision to reporters in Stockholm. “We’re happy with the level we’re seeing now. It’s a level that I think will last.”
As finance ministers from the Group of 20 gather this weekend in Moscow, focus will be on the threat of international currency wars in a battle to boost trade competitiveness through weaker exchange rates. Swedish Finance Minister Anders Borg said last month that the Riksbank’s policy of not cutting rates further is propping up the krona and preventing the exchange rate from helping sustain a recovery.
“There’s a difference between the discussions that are conducted at for example the context of Group of Seven and what finally ends up happening,” Ingves said.
The Riksbank is committed to its inflation target and will accept the shifts in the krona exchange rate that the market delivers, he said. The bank’s decision today leaves its main rate a quarter point higher than the European Central Bank’s benchmark. Main rates in the U.S. and Japan are close to zero.
“We have to expect that the krona moves sometimes in one direction and sometimes in the other,” Ingves said. “We have for a long time, when the krona was significantly weaker than it is today, said that the krona ought to strengthen, considering the economic development in Sweden. It’s now done that and we now think the krona is where it ought to be.”
Most forecasters estimate Sweden’s economy will recover this year as jobs growth boosts confidence that Europe has surfaced from the worst of its fiscal turmoil.
The Riksbank kept its growth forecasts unchanged today, predicting that the Swedish economy will expand 1.2 percent this year, after a gain of 0.9 percent last year. Growth will pick up to 2.7 percent next year. Consumer prices, excluding mortgage costs, will remain below the 2 percent target until 2015, the bank said. Unemployment will be 8.1 percent this year and ease to 7.8 percent next year, higher than the 7.6 percent prediction in December.
Two of the bank’s six board members voted to lower rates. Deputy Governor Karolina Ekholm wanted a cut to 0.75 percent while Deputy Governor Lars E.O. Svensson argued in favor of a repo rate of 0.5 percent through the first quarter of 2014.
Sweden has steered clear of the recession that’s descended on the euro area, helping the AAA rated Nordic nation to emerge as a haven from the debt woes plaguing southern Europe. Demand for Swedish assets sent the krona to a 12-year high versus the common currency in August.
“The krona is of course important” because half of Sweden’s economy is based on exports, Ingves said. “We know from experience all the way from the 1990s that the krona can move quite a lot in both one or the other direction without being particularly difficult to deal with by the Swedish economy, so in that sense we have adapted to these fluctuations.”