When the exchange rates moves brought the involvement of many citizens. In recent years the Swedish krona has weakened against several other currencies, has the commitment been marked and it has created a debate on whether the weakening damage or is beneficial for the Swedish economy. As the exchange rate is affected by the level of interest rates in relation to the world, the Riksbank’s monetary policy has borne the brunt. How you can look at the interaction between monetary policy and the exchange rate is one of the issues that we take up in the annual report ”Account of monetary policy,” the Riksbank publishes today.
” Monetary policy in Sweden has been very expansionary in recent years, just as in our world. The reason for this has been clear: to combat the low inflation and stabilising inflation around the target of 2 per cent. After having been very low for several years, inflation is now back at the target. Inflation expectations have also stabilised at around 2 per cent. Price stability is our mission and it is the best way in which the Riksbank can contribute to the fixed rules of the game in the economy.
at the same time, thus has weakened. This is partly due to the expansionary policy, but since the beginning of 2018 is also likely that the prospects for growth in the Swedish economy has seen worse.
at the same time, thus has weakened. This is partly due to the expansionary policy, but since the beginning of 2018 is also likely that the prospects for growth in the Swedish economy has seen worse. But also the less obvious, global factors seem to have played a role.
Although these have weakened against the euro and the dollar. A possible explanation may be the uncertainty e.g. Brexit and handelskonflikten between the united states and China created in the outlook for world trade.
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How should we then look at the weakening of the crown as a matter of principle? Like many other small open economies, such as Norway, Australia, New Zealand and Canada, Sweden has long had a floating exchange rate and inflation targeting.
This means that monetary policy can take greater account of the domestic economic development than is possible when the exchange rate is fixed, if there is sufficient confidence in the inflation target. One need not, for example, raise interest rates in an already weakening economy to defend the exchange rate, something that would reinforce the downturn. Another advantage is that the variable exchange rate in times of crisis can act as a shock absorber for the domestic economy.
It was something that we clearly saw during the downturn after the it-bubble in 2001, and in connection with the global financial crisis in 2008. When the Swedish krona was weakened could the Swedish exporters to maintain their competitiveness on the global markets and Sweden distinguished itself as one of the countries fastest rebounded after the financial crisis, when it came to growth and inflation.
It has provided us with a lower and more stable inflation than in the past and even contributed to a good development of production and employment. But a floating exchange rate means that the exchange rate value is determined freely in the market. The riksbank may not, and shall not, to stabilise both inflation and the exchange rate. You have to choose, and with an inflation target, it is inevitable that the exchange rate moves.
It is true, of course, that means we can buy less for our money on holidays abroad, but it is also easy to associate this with changes in Sweden’s welfare in a broader sense. However, there is no simple and unambiguous relationship between a country’s exchange rate and its prosperity, such as this concept is normally used. For example, you can not create prosperity by keeping the exchange rate strong – or, for that matter, weak. According to the ordinary measure of prosperity, per capita gdp, the development in Sweden since the financial crisis has been relatively good in an international perspective.
the weakening of the krona subdues omvandlingstrycket in the economy , in the same way as the devalveringspolitik that Sweden pursued in the 1970s and 80s. Then, the work was to streamline and modernise the enterprises suffering because all are counted with the value of the krona would be written down if the cost increases were too high. The comparison between now and then is lame, however. Devalveringspolitiken meant that you tried to mitigate the consequences of that Sweden during several decades had a too high inflation in relation to the world. The riksbank has now instead in a few years pursued a policy of expansion and in a completely different purpose – to defend the credibility of the inflation target contributed to the Swedish economy developed well. To put it differently, the aim has been to preserve the anchor for prices and wages as we have in the economy, while devalveringspolitiken instead was an expression of that we had no such anchor.
To measure the omvandlingstrycket in the economy is, of course, difficult. But the impression we have from our travels around in Sweden is that the entrepreneurs that we meet are constantly thinking about how they can improve their profitability and become more efficient and competitive, regardless of whether the exchange rate is weak or not. This is also the picture that emerges in the Riksbank’s business survey.
In virtually all countries in the world have as we have an inflation target at or very close to 2 per cent. The Swedish inflation relatively how the world should therefore not cause any trend depreciation of the krona.
Some may, of course, still land in the assessment that the exchange rate movements become too large, with an inflation target and a floating exchange rate and that a different arrangement would therefore be preferable. In Sweden it is the government that decides if the exchange rate is fixed or variable.
Our view is that the order we have had since the mid-1990s has been very good for the Swedish economy and that there are good reasons to believe that it will continue to be so.
