Banks slash outlook for Swedish krona

Bloomberg

Everyone is lining up to attack Sweden’s currency, from investors to the country’s leaders.
The krona’s four-year slump has led to soul-searching in the Scandinavian nation about whether the policies pursued in the wake of the financial crisis have backfired.
Banks are slashing their outlook for the krona, a former prime minister has suggested dumping it for the euro and a business federation has accused the central bank of effectively devaluing the currency, leading the Governor to defend its ultra-loose policy.
The krona is the worst-performing major currency this year, confounding strategists who picked it as a world beater for 2019. They have since been steadily dialing back predictions following a batch of weak Swedish economic data that derailed bets on Riksbank rate hikes, before the latest bout of global risk-off market moves hit sentiment further.
“The krona has become a funding currency for carry trades,” said Jane Foley, the head of currency strategy at Rabobank, who sees it falling another 2 percent this year. “There is a real risk that the Riksbank will adopt a more dovish stance at the April 25 policy meeting. Inflation has been benign and manufacturing confidence has slipped. This is likely to undermine the krona further.”
For Riksbank critics, years of unprecedented stimulus have failed to lift inflation materially while negative rates and
quantitative easing have created risks for inflated asset prices and sent the krona to the same levels as in the wake of the financial crisis. Ex-Prime Minister Goran Persson called on the country to go over to the euro, itself a laggard this year.
Nordea Bank Abp, the largest Nordic lender, said the Riksbank has created a “krona-killing monster” with all its stimulus. The central bank’s “dumping” of the krona risks damage to the economy in a replay of the devaluation years of the 1970s and 1980s, according to Gunther Marder, the head of the Swedish Federation of Business Owners.
Riksbank Governor Stefan Ingves felt compelled to respond on the currency’s weakness in an op-ed this week in which he defended the bank. Ingves lifted rates in December for the first time in seven years, and had signaled another move was due later this year before data got in the way. He argued that having a floating exchange rate can act as a shock-absorber for the economy.
“The Riksbank can’t, and shouldn’t, stabilise both inflation and the exchange rate,” Ingves said in Dagens Nyheter, the nation’s biggest morning paper. “You have to choose, and with an inflation target it’s inevitable that the exchange rate moves.”