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Swedish Krona Mixed After Rallying on Interest Rate Hike

December 20, 2019 at 18:52 by Vladimir Vyun

Swedish coins with a krona bill on backgroundThe Swedish krona fell a little against the strong currencies like the US dollar and the Great Britain pound but jumped versus the vulnerable euro today. Yesterday, the currency rallied thanks to the much-anticipated interest rate hike from Sweden’s central bank.

Riksbank decided at yesterday’s monetary policy meeting to raise its benchmark interest rate from -0.25% to zero. That makes it the first central bank to exit negative interest rates that were introduced in the past six years. Analysts said that the move was extremely predictable. The statement explained the decision:

Inflation has been close to the Riksbank’s target of 2 per cent since the start of 2017, and the Riksbank assesses that conditions are good for inflation to remain close to the target going forward. Therefore, in line with the assessment in October, the Executive Board has decided to raise the repo rate from –0.25 per cent to zero per cent. The forecast for the repo rate is unchanged, and the repo rate is expected to remain at zero per cent in the coming years.

The central bank said that the economy was developing within expectations:

Developments since the monetary policy meeting in October have on the whole been as the Riksbank expected. The economic prospects and outlook for inflation are largely unchanged.

But the bank signaled that it is ready to revert the rates back into the negative territory if it becomes necessary:

If the economic outlook and inflation prospects were to change, monetary policy may need to be adjusted. Improved prospects would justify a higher interest rate. But if the economy were instead to develop more weakly than forecast, the Executive Board could both cut the repo rate and take other measures to make monetary policy more expansionary.

The central bank reduced its outlook for annual GDP growth in 2019 to 1.1% from 1.3% in the October projections. The outlook for growth in 2020 remained unchanged at 1.2%, while the projections for 2021 were upgraded from 1.6% to 1.7% and for 2022 from 1.8% to 1.9%. The outlook for the annual consumer inflation rate remained unchanged at 1.8% for 2019 and 2021, while for 2022 it stayed at 2.1%. The forecast for annual inflation in 2020 got a slightly negative revision from 1.9% to 1.8%.

USD/SEK edged up from 9.4077 to 9.4156 as of 18:50 GMT today, bouncing from the daily low of 9.3894. GBP/SEK was up from 12.2339 to 12.2507 but pulled back from the session maximum of 12.3022. At the same time, EUR/SEK slumped from 10.4644 to 10.4229.

If you have any questions, comments, or opinions regarding the Swedish Krona, feel free to post them using the commentary form below.

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