Sliding krona “nothing to worry about”

The sliding krona is nothing to worry about, according to the chief economist at Swedish bank SEB, Klas Eklund, who has told TT that it is just a short term phenomenon. When the Riksbank, Sweden's national bank, begins to raise the interest rate again, the krona will strengthen, he said.

“At the moment we have very low inflation and Europe’s lowest interest rate, which is positive,” said Eklund.

“And that low interest rate means that companies, funds and insurance companies with a lot of cash at their disposal are putting their money in countries outside Sweden which have higher rates of interest. That means we have an outflow of currency and the krona weakens.”

Eklund added that he did not think that the weakening would have any significant consequences for the Swedish economy or private individuals’ finances.

“This is a short term phenomenon. As soon as the Riksbank raises the interest rate again next year the trend will switch and the krona will strengthen again,” he said.

He noted that Swedish exporters are benefiting from the weak krona, while importers are finding goods more expensive and tourists must pay more abroad.

On Thursday the krona weakened against the US dollar to 8.23 kronor from 6.58 kronor at the start of the year.

While Eklund speculated that rising import prices affecting inflation may lead the Riksbank to bump up the interest rate earlier than expected, he sounded a note of caution.

“Before you get carried away over it, you should remember that the point of the interest rate cut in the summer was to stimulate the Swedish economy and push up inflation,” he said.

However, Riksbank governor Lars Heikensten hinted on Wednesday that an interest rate rise may indeed be on the cards.

“Given the information we have now, the financial markets’ expectations of a repo rate increase some time next year appear reasonable,” said Heikensten.

“It is quite natural given the current situation with extremely low interest rates and stimulation from monetary policy that the time for a repo rate increase is approaching.”

Still, SEB’s Klas Eklund said that the sliding krona is nothing to worry about. He maintained that the Swedish economy is very strong.

“One thing would be if the krona was falling because the economy is weak and competitiveness is poor. Then a weak currency is a kind of alarm clock. But that is not the case right now – we have a massive trade surplus and Europe’s lowest interest rate and inflation,” he said.

“The currency weakness is not a sign that Sweden has a weak economy.”

Discuss this topic!

The Local/TT