Sweden’s Krona Charts Recovery, But Former Minister Urges Caution

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Over the last year, the Swedish krona has been a currency to avoid. In that span, it was the second-worst performing currency in the developed world. Economic observers tracking developments in forex news now see the krona on the path to recovery, according to Bloomberg Business. Those strategists, surveyed by Bloomberg, predict that the krona will strengthen by as much as 9 percent per euro by the end of the year.

That optimism toward the krona is accompanied by analyst sentiment that Sweden’s central bank has been taking the appropriate measures. Even so, words of caution are coming from someone intimately familiar with the fluctuations of the krona – Sweden’s former finance minister, Anders Borg. He warns that the krona could actually become too strong for Sweden’s economy. If that happens, he believes Sweden’s central bank should step in. Borg speaks from experience. In his tenure from 2006 through 2014, he steered Sweden throughout the European debt crisis.

Already, price growth in Sweden has weakened because Sweden’s strong exchange rate makes imports less expensive. The krona is 18 percent stronger against the euro compared to what it was at the end of 2008, Bloomberg notes.

So far, the Riksbank is holding the line on interest rates, not yet delivering the interest rate cut that analysts have been expecting. But the central bank did extend its bond purchase program, which it believes will revive price growth, Bloomberg reported. In a post at Seeking Alpha, Andrew Sachais says that Sweden’s economic growth and inflation justify the Riksbank’s current monetary policy. He believes that as the country’s economy improves, the krona will also rise.

Meanwhile, the improving economy also brings with it an increase in inflation. But Sachais notes that inflation in Sweden is less than inflation measures in other European countries.

“While inflation is low, it too remains stable, above contraction territory,” Sachais writes. “As the Swedish economy continues to improve, its currency should move higher.”