Sweden’s Central Bank Debates Rate Hike Before Election

Sweden’s central bank is scheduled to meet this week to discuss monetary policy, including whether to raise interest rates as the country’s krona hits its lowest level since the financial crisis.

Riksbank Governor Stefan Ingves and his colleagues will make an announcement this week, just three days before the country’s national election. All 24 analysts surveyed by Bloomberg expect the bank to keep the main rate at minus 0.5 percent.

“The krona is so weak today that it’s absolutely a parameter that will be weighed in,” said Annika Winsth, chief economist at Nordea AB, the biggest Nordic bank. “Underlying inflation is so weak,” there won’t be a rate increase this week, she added.

The decline of the krona comes amid political uncertainty in the Nordic country, the prospect of a widening trade war that could hurt it and increasing attention to the benefits of currency hedging among commerce and payments businesses.

After the rate decision comes the election, and some observers worry that the nationalist Sweden Democrats — an anti-immigrant party that wants the country to leave the European Union and is expected to win 20 percent of the vote — could gain enough power to interfere with the formation of a stable government. That uncertainty is a main factor in the selloff in Sweden’s currency.

At its most recent meeting, Riksbank’s board had two members pulling for a rate hike right away, or in September, while the other four wanted to wait until later in the year.

Riksbank First Deputy Governor Kerstin af Jochnick admitted last month that it was “very good” that headline inflation is now more than 2 percent, but she still wants to make sure that inflation gains are affecting the broader economy.

“We want inflation to stabilize around 2 percent, and we can see that inflation pressure has been moderate for some time,” af Jochnick said. “In July I mentioned service prices because they have turned downwards, and it’s been in our forecast that they should remain at the levels that they touched earlier.”