Riksbank chief ‘unfazed’ by strong krona

The Swedish currency has hit a six-month high against the euro, with Riksbank head Stefan Ingves telling a parliamentary committee that the exchange rate was nothing "out of the ordinary".

Riksbank chief 'unfazed' by strong krona

The krona rose 0.36 percent against the euro to 8.2996, the highest level since August 29th 2012, reported Bloomberg News.

Sweden’s export-heavy economy is sensitive to fluctuations in the value of the krona.

Ingves appeared at a meeting of the parliamentary finance committee on Thursday to take questions from committee members.

VIDEO: Parliamentary finance committee meeting with Riksbank representatives (in Swedish)

“We have, since the mid-1990s, worked on the principal that it is not technically possible nor desirable to fine tune inflation in the short-term, which could lead to fluctuations.”

In January, the Riksbank decided to keep the benchmark interest rate at 1 percent. Not all of its board members agreed with the decision. Karolina Ekholm wanted the central bank to cut the key repo rate to 0.75 percent, with Lars E.O. Svensson advocating a drop to 0.5 percent.

At the time, Ingves cited rising consumer confidence as a reason to keep the rate unchanged.

“The unease on the financial markets has declined, and households and companies, both in Sweden and abroad, have become slightly more optimistic with regard to the future,” he said.

Bloomberg reported on Thursday that Swedish consumer confidence was up in February.

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Sweden’s Riksbank raises rates above zero for first time since 2014

Sweden's central bank has increased its key interest rate to 0.25 percent, marking the first time the rate has been above zero for nearly eight years.

Sweden's Riksbank raises rates above zero for first time since 2014

In a press release announcing the move, the bank said that it needed to take action to bring down the current high rate of inflation, which it predicts will average 5.5 percent in 2022, before sinking to 3.3 percent in 2023.

“Inflation has risen to the highest level since the 1990s and is going to stay high for a while. To prevent high inflation taking hold in price and wage developments, the directors have decided to raise interest rates from zero to 0.25 percent,” it said. 

The Riksbank, which is tasked by the government to keep inflation at around two percent, has been caught off-guard by the speed and duration of price rises.

Just a few months ago, in February, it said it expected inflation to be temporary, predicting there was no need to increase rates until 2024.

The last time the key inflation rate was above zero was in the autumn of 2014. 

In the press release, the bank warned that the rate would continue to increase further in the coming years. 

“The prognosis is that the interest rate will be increased in two to three further steps this year, and that it will reach a little under two percent at the end of the three-year prognosis period,” it said. 

According to the bank’s new future scenarios, its key interest rate will reach about 1.18 percent in a year, and 1.57 percent within two years. 

In a further tightening of Sweden’s monetary policy, the bank has also decided to reduce its bond purchases. 

“With this monetary policy we expect inflation rates to decline next year and from 2024 to be close to two percent,” the bank wrote. 

Annika Winsth, the chief economist of Nordea, one of Sweden’s largest banks, said the rate hike was “sensible”. 

“When you look at how inflation is right now and that the Riksbank needs to cool down the economy, it’s good that they’re taking action – the earlier the better. The risk if you wait is that you need to righten even more.” 

She said people in Sweden should be prepared for rates to rise even further. 

“You shouldn’t rule it out in the coming year. Then you’ll have a once percentage point increase which will go straight into fluctuating mortgage rates.”