Swedish currency weak, national elections imminent

As Sweden’s krona plunges to its lowest point since the financial crisis, the central bank may finally get the economic setting it needs to start raising interest rates.

Riksbank Governor Stefan Ingves and his colleagues will be watching the exchange rate closely when they meet this week to discuss monetary policy in the biggest Nordic economy.

Their announcement is due on Sept. 6, just three days before a national election that could upend the status quo in Swedish politics.

All 24 analysts surveyed by Bloomberg expect the bank to keep the main rate at minus 0.5 percent, but the weak currency is likely to shape any forward-looking comments.

“The krona is so weak today that it’s absolutely a parameter that will be weighed in,” said Annika Winsth, chief economist at Nordea AB, the biggest Nordic bank.

The Riksbank will discuss the future of monetary policy as Sweden girds for what is set to be one of the most consequential elections in its history. The nationalist Sweden Democrats -a party that wants the country to leave the EU- is poised to win almost 20 percent of the vote. The party’s ascent has made it more difficult for the two main political blocs to form a viable government, and the uncertainty surrounding the election outcome is a key reason for the selloff in Sweden’s currency.



A weaker exchange rate raises the price of imports and drives up inflation. It also feeds Swedish economic growth by making exports cheaper.
Recent data show that the Riksbank’s long struggle to revive inflation is far from over. While headline price growth has been close to the 2 percent target for more than a year, inflation has slowed to a 17-month low. Price growth on services, something closely watched by policy makers, is at its lowest since 2015.

Source: https://www.bloomberg.com/news/articles/2018-09-03/sweden-s-currency-selloff-may-be-about-to-save-the-central-bank


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