Swedish central bank announced need to strengthen national currency
2023.02.09 08:30
Swedish central bank announced need to strengthen national currency
By Ray Johnson
Budrigannews.com – On Thursday, the Swedish central bank increased its key interest rate by half a percentage point to 3.0% and predicted further tightening in the months to come to combat inflation and currency headwinds.
Many in the market, who had anticipated that Thursday’s hike would be the last in this tightening cycle, were surprised by the sharp rise in the crown following the announcement.
Central banks around the world are attempting to determine when monetary tightening can end, easing the burden on households facing a cost of living crunch and ensuring a soft landing for economies, following a rapid series of rate hikes.
The central bank of Sweden, which raised borrowing costs from 0% a year ago, stated that inflation remained excessively high due in part to the weak Swedish currency driving up import costs.
The central bank stated, “It will be significantly more difficult for the Riksbank to sustainably return inflation to the target if the krona continues to be weak.” It would be preferable to have a stronger krona in the current situation.”
The central bank anticipates at least one more rate increase this year with stable borrowing costs.
The Riksbank will also sell government bonds starting in April to reduce asset holdings more quickly.
Analysts predicted that the central bank under new Governor Erik Thedeen would likely remain hawkish, despite the fact that it must strike a delicate balance between inflation and the crown and a slowing economy and a falling housing market.
Swedbank stated in a note that “Erik Thedeen has shown that he and this ‘new’ Riksbank board are determined in their fight against inflation and the weak krona,” and it anticipated that the bank would increase interest rates by 25 basis points at its two subsequent meetings.
Nordea stated that it anticipated a quarter-point increase in April but added that the possibility of a larger increase was now “wide open.”
Over the past six months, Sweden’s crown currency has lost almost 10% against the euro, putting pressure on the Riksbank to tighten policy at the same rate as the European Central Bank.
In the beginning of this month, the ECB announced a 50-basis-point increase in its key rate and promised another half-percentage point increase in March. In a Reuters poll, analysts almost unanimously predicted a 50 basis point increase in May to emphasize the Riksbank’s commitment to combating double-digit inflation.
However, the median forecast predicted that the policy rate would peak at 3.0%.
