Opposition victory “will strengthen krona”

The krona will continue to weaken against the euro and the dollar over the coming months, according to the latest analysis from Swedish bank SEB. However, the bank says that a conservative victory in the September election will strengthen the currency again.

“Low inflation is working as an anchor for the Riksbank’s option to raise the interest rate. So the krona is stuck between a ‘soft’ Riksbank on the one hand and the European Central Bank and the American Federal Reserve, who are a little tougher with their interest rate rises, on the other,” wrote SEB.

“It’s hard for the Riksbank to move forward quickly with rate rises, despite the fact that the economy is strong and that the government is adding fuel to the fire with further cash in the spring budget,” said Robert Bergqvist, chief analyst at SEB.

“And since there is no established and credible framework for how house prices and debts are taken into account in the Riksbank’s interest rate decision, it’s the inflationary outlook which ultimately determines the rate level.”

According to SEB, analysts reckon that election victory for the opposition alliance – the Moderates, the Centre Party, the Liberals and the Christian Democrats – will strengthen the krona. One of the main reasons behind the prediction is the proposed cuts in wealth tax.

“Such a measure ought to stop an annual outflow of capital of around 25 billion kronor,” said Robert Bergqvist.

He added that the alliance’s plans to privatise a series of state-owned companies would also create a positive capital flow.

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TT/The Local