Bloomberg News

Krona Surge Justified, Not Led by Tightening, Nyberg Says

June 08, 2011

(Updates with currency analyst comment in sixth, seventh paragraphs.)

June 8 (Bloomberg) -- Sweden’s krona, which is up about 30 percent against the dollar in the past year, is only “starting to approach” a level that can be deemed “reasonable,” central bank Deputy Governor Lars Nyberg said.

“We’ve said for at least ten years that the krona has been undervalued and ought to strengthen a bit,” Nyberg said in an interview in Stockholm yesterday. “It’s now starting to approach a level that’s more reasonably valued than it has been during the last 10 years.”

The krona’s gains against the dollar and the euro in the past year have left it the second-strongest performing major currency in the period after the Swiss franc. The currency’s surge has come as the central bank has raised the benchmark interest rate six times since July, bringing it to 1.75 percent in April. Policy makers are signaling the rate will need to rise throughout the rest of the year.

“We have raised faster than others and that would lead you to believe that the krona should have strengthened a lot more than it actually has done, but that has not happened,” Nyberg said. “We haven’t seen these problems but of course we follow the development.”

The krona erased some of its losses against the euro to trade 0.2 percent down at 9.0399 at 12:10 p.m. compared with a 0.4 percent loss earlier in the day. Against Norway’s krone, the Swedish currency gained 0.3 percent. It was down 0.4 percent versus the dollar, compared with an earlier 0.6 percent loss today.

Companies Resilient

The krona will strengthen to 8.7 against the euro toward the end of the year, according to Carl Hammer, chief foreign exchange strategist at SEB AB in Stockholm. It will gain to about 8.9 to 9 in the next few months, he estimates.

“If you ask companies if today’s levels, or some more strengthening, would be very negative, most say that they will manage a continued strong currency or an even stronger currency,” Hammer said. “The krona is somewhat undervalued.”

The krona will probably deliver about 5 percent to 7 percent in further gains in trade weighted terms, he said.

Sweden’s economic rebound has outpaced growth in the rest of Europe. The largest Nordic economy grew an annual 6.4 percent last quarter after expanding 7.7 percent in the last three months of 2010, helped by an export boom, according to the Stockholm-based statistics office.

A strong krona “is not a problem at the moment,” Nyberg said. “We’re of course tracking the development but we have no target for the exchange rate.”

The Riksbank’s official forecast is for the krona to “flatten or maybe fall slightly, but it’s very hard to say,” Nyberg said. “To forecast the krona is incredibly difficult but we haven’t seen any big negative effects of this development on either demand or inflation.”

--Editors: Tasneem Brogger, Jonas Bergman.

To contact the reporter on this story: Johan Carlstrom in Stockholm at jcarlstrom@bloomberg.net

To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net


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