“Risk of the krona continuing to weaken”

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“Risk of the krona continuing to weaken”

03 Mar 2019 Comments Closed 53 Views

The weak krona is usually explained by the Riksbank’s minus interest rates and the interest rate differential with abroad. This week’s Friday panel, which consists of Michael Grahn, chief economist at Danske Bank, Christina Nyman, chief economist at Handelsbanken and Robert Bergqvist, chief economist at SEB, gives his view on cause and consequences.

W ilka are the most important causes of the crown press?
– The main reason is that the market doubts the Riksbank’s raising plans. It is priced only with about 70 percent probability of an increase later this year. The reason for this is the market has begun to realize that inflation in recent years has been driven by temporary factors such as rising energy prices, tax increases and the weaker krona. However, nothing happens on the wage front. Substantially faster wage increases would be needed in the future than is now the case to give a sustainable inflation rate in line with the 2 per cent target. Swedish wage formation, where the industry puts the mark on the basis of competitiveness, results in too low wage agreements to raise domestic cost pressures. The result of the mismatch between the inflation target and the wage formation is that the krona may take the bang when the other factors do not contribute sufficiently to inflation.

Many, including the Riksbank, assume that the krona will strengthen over time. Why hasn’t that already happened?
– Because the Riksbank has gradually moved forward the interest rate hikes when inflation undercut the forecasts. Conversely, the krona is weakened regularly as monetary policy is eased in this way.

How serious is the weak krona?
– Det finns tydliga nackdelar, men få fördelar. Nackdelarna är att det urholkar hushållens köpkraft då stigande importpriser äter upp löneökningen. De senaste två åren har reallöneökningen legat nära noll, vilket är liktydigt med att det inte blir någon förbättring på individuell basis. Et annat exempel på detta är att semestern blir dyrare. En annan nackdel är att våra tillgångar blir billiga, det vill säga – vi riskerar att se utländska uppköp av företag och fastigheter. Än så länge finns dock inga tydliga tecken på detta. En tredje nackdel alternativt fördel som det inte prata särskilt mycket om är att kronan påverkar förmögenhets-fördelningen. De rikare hushållen som har finansiella tillgångar kan hedga sig genom att ha utländska tillgångar som stiger värde när kronan försvagas. Det kan förstås inte de fattigare hushållen. Fördelarna är att industrin håller sig konkurrenskraftig. Förutom att det kan ge positiva avtryck i vinsterna så kan det ju även i förlängningen innebära att företagen behöver fler anställda. Men den effekten är antagligen liten. Industrin står ju inte för den större delen av sysselsättningen.

Do you see a risk that the krona will strengthen very quickly when and if the interest rate differential towards the outside world becomes smaller?
– Yes, if the Riksbank would indicate that you “run on” with interest rate hikes, the krona would be significantly strengthened. But then one would at the same time shoot himself in the foot because it would bring clear pressure on import prices and inflation. One simply cannot afford this other than abandoning or redefining the inflation target. And there are no indications of this. So, just as the Riksbank’s forecasts always indicated rising interest rates and a stronger krona, the risk is rather that there will be no increases and that the krona will continue to weaken in the trend. It can be noted that since the bottom of 2013, the KIX index has lost about 4 per cent a year.

Autor: Camilla Jonsson, Realtidmedia

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