On Tuesday, a new record low was noted for the Swedish krona, which continues to fall. This puts the Riksbank in a difficult situation ahead of the interest rate announcement to be announced next week.
– I think there will be a balance, says Christina Nyman, Chief Economist at Handelsbanken.
During Tuesday afternoon, a new record low was noted against the euro, which cost around SEK 11.80.
When the Swedish krona loses value, it becomes more expensive to import goods. This leads to higher prices in the shops, which in turn drives inflation.
– We think we see that the retail companies have a hard time not passing on these cost increases, but they will. And then prices rise again, says Christina Nyman, chief economist at Handelsbanken.
Interest-sensitive economy
There are several reasons why the krona is weak. In part, the uncertain situation means that foreign investors flee to safer currencies such as the euro and dollar. Another reason is that the Swedish economy is considered to be extremely sensitive to interest rates.
– It’s about households that are highly indebted, which can cause you to cut back sharply on your consumption when interest rates rise. It is also about the commercial real estate sector, which is also in debt, and can affect the entire economy, says Christina Nyman.
According to analysts, this could put the Riksbank in a difficult situation ahead of next week’s interest rate announcement.
On the one hand, higher interest rates can dampen investors’ fears of a collapse in, for example, the real estate sector. On the other hand, a lack of increase could be interpreted as a departure from the European Central Bank’s hard line.
– I think they will strike a balance and raise 0.25 percentage points at the June meeting and also signal that there may be further interest rate increases, says Christina Nyman.