© Anders Eklof
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We do not believe that the Swedish Krona is ever going to have a status of a safe haven currency. The main reason for that is by safe haven currencies we consider assets that have very high liquidity, and obviously is not the case for the Swedish Krona. However, as Sweden's economy has strong fundamentals, the Swedish Krona could be a marginal currency for investors, who are looking for secure assets to diversify into. In addition to that, the Krona's performance highly depends on the global outlook, since Sweden has a small and open economy. The Krona might be a flight to safe haven in a very short term, but it is not sustainable and it cannot be compared to the major currencies like the U.S. Dollar, which has huge liquidity.
If the Krona will continue to strengthen, do you see it necessary for the central bank to intervene and halt the appreciation?
We believe that as the Riksbank at the moment has other priorities, it is quite unconcerned about the appreciation of the Swedish Krona. The fact that Sweden has a high household debt level that in the long run could become the main issue for the financial stability, showing the Riksbank's determination to preclude this particular problem. Thus, the central bankers have no interest to lower the benchmark rate in order to keep off the currency from appreciation. Currently the Sweden's central bank has two main objectives: price and financial stability. Certainly, if the Krona considerably strengthens, and at the same time the export market weakens faster, then the Riksbank policy makers will most probably change their mind and focus more on the price stability target and, perhaps, will cut the rates, but for now this is not the case. At the moment, the central bank is more in a wait-and-see stance, and the policy makers will not worry much about the appreciation of the currency, as long as the global recovery is expected.
Does the current uncertainty surrounding Cyprus bailout have a significant impact on the economy of Sweden?
The impact is that, perhaps, the Krona is getting paid off for the Swedish banking sector being quite strong comparably. Even if Sweden's banking sector is quit big compared to the nation's GDP, it is also safe guarded by restrictions. The Swedish banks have been strengthening their balance sheets for a couple of years. If Sweden faces any problems, the banks can be bailout indirectly by the central bank. Moreover, the country has its own currency; therefore the story would not be the same as with Cyprus. If the problems arise, there would be ways how to deal with them. The risk that the same story might happen with Sweden is quite low, as Swedish banks currently have been consolidating their balance sheets during the recent years.
What is your short and longer term outlook for EUR/SEK and USD/SEK?
Our short-term forecast for EUR/SEK is 8.25 and for USD/SEK is 6.45. In the longer term we expect that EUR/SEK might stay unchanged at 8.30 with a possibility of some downside risks. As we believe EUR/USD will depreciate, we anticipate USD/SEK to be around 7.00 in a year.