Krona Not Strong Enough to Threaten Price Target, Parak Says

The Swedish krona’s appreciation hasn’t left the currency strong enough to threaten the central bank’s inflation target, Deputy Governor Barbro Wickman-Parak said.

“If we get a strengthening that’s much bigger and more permanent, it would affect inflation,” Wickman-Parak, who has consistently voted with Governor Stefan Ingves and the majority on the six-member Riksbank board, said in an interview today in Stockholm. “The day you face problems you have to deal with them, but we are not there now.”

The krona is the best performer in the Bloomberg Correlation-Weighted Index that tracks 10 developed nations, having risen 5.5 percent this year. In an interview last month, Ingves said he was “happy” with the exchange rate. The krona has risen 6.5 percent against the euro over the past 12 months, bringing gains since the height of the global financial crisis in March 2009 to 41 percent.

That’s put a lid on import prices and left inflation well below the Riksbank’s 2 percent target. Consumer prices fell 0.2 percent in February from a year earlier, the statistics office said yesterday. Underlying inflation, which takes the impact of mortgage costs into account, was 0.9 percent, it said.

The Riksbank last month kept its benchmark repo rate unchanged at 1 percent after cutting it four times over the previous year to boost Sweden’s export-reliant economy. The bank will announce its next rate decision on April 17.

Undervalued Krona

Wickman-Parak said the krona is trading at a level that “about” matches the bank’s long-term forecasts, while emphasizing that policy makers don’t target the exchange rate.

“An undervalued krona will, in the short-term, have a positive effect on exports, but in the longer perspective it could put a break on the conversion pace of the economy,” she said. “In the longer-term, it’s actually not good” to have an undervalued krona because it reduces purchasing power, she said.

Deputy Governor Karolina Ekholm, who has argued for larger rate cuts than those delivered by the bank, said today that krona appreciation risks hampering efforts to keep inflation around the Riksbank’s 2 percent target.

It’s “not good” if the krona slows inflation below the forecasts, Ekholm told reporters in Stockholm.

Should the krona “move in a way so that inflation is pushed down further, well, then that’s worrisome,” Ekholm said. “I’m not saying that’s something that necessarily demands a monetary policy response, but it would be more on the cards then.”

A survey commissioned by the Riksbank and released today showed that traders, labor groups and purchasing managers estimate inflation will be 1.9 percent in five years.

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