Bloomberg News

Swedish Krona Rises on Bets Riksbank May Refrain From Rate Cuts

December 20, 2011

Dec. 20 (Bloomberg) -- The Swedish krona climbed to its strongest level in more than a week against the dollar after the nation’s central bank signaled it may refrain from reducing interest rates next year.

The krona climbed for a fifth day versus the euro, the longest run of gains since February, even as the Riksbank cut its seven-day repo rate by 25 basis points to 1.75 percent and said it will average 1.7 percent in the fourth quarter of next year. That’s down from a previous forecast of 2.3 percent. Norway’s central bank reduced its main rate on Dec. 14 by a more-than-expected 50 basis points, also to 1.75 percent.

“It’s more about the path than anything else,” said Niels Christensen, chief currency strategist at Nordea Bank AB in Copenhagen. “The move is a little bit more modest, more careful than what we’ve seen from other central banks, so that’s also another reason we’re not seeing a weaker krona.”

Sweden’s currency strengthened 1.3 percent to 6.8380 per dollar at 4:01 p.m. London time, after appreciating to 6.8209, the most since Dec. 12. It climbed 0.5 percent against the euro to 8.9643, after climbing to its strongest level since Sept. 12.

The central bank’s decision was predicted by 11 of 24 analysts in a Bloomberg survey, while two said there would be a half point reduction and the rest an unchanged rate.

The Federal Reserve’s target for overnight loans will stay at 0.25 percent through 2012, while the European Central Bank will probably cut its main rate to 0.75 percent, according to Bloomberg surveys of economists.

‘Pretty Messy’

Norway’s krone rose for a third day, gaining 0.2 percent to 7.7117 against the euro and was 1.1 percent stronger at 5.8808 versus the dollar.

“Things are pretty messy in the world around us and that also affects the Swedish economy,” Riksbank Governor Stefan Ingves said in Stockholm. “We expect that the rate will stay around these levels at least through 2012 and a bit longer.”

The Riksbank rate path “implies only a small chance that they cut rates again in 2012,” Elsa Lignos, a currency strategist at Royal Bank of Canada in London, wrote in a client note today. “That has unwound rate-cut expectations” among investors, she said in the report.

The krona gained 1.3 percent in the past week, the biggest advance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar slipped 1.1 percent, with the euro 0.5 percent lower.

--With assistance from Johan Carlstrom in Stockholm. Editors: Daniel Tilles, Matthew Brown

To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net


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