The Riksbank has intervened in the currency market

Today the Riksbank has intervened in the currency market with a view to strengthening the Swedish krona. The intervention is based on a decision taken by the Executive Board on 14 June.

 

It is judged that, since the publication of the latest Inflation Report the risk of inflation exceeding the Riksbank's 2 per cent target has increased.

 

In the Inflation Report, published on 31 May, it was considered that inflation one to two years ahead would be approximately in line with the target. The risk spectrum was balanced. At the same time, the uncertainty was unusually pronounced.

 

The new information about economic developments and inflation in Sweden and the rest of the world does not by itself motivate a change in the appraisal of inflation prospects one to two years ahead. Nevertheless, the risk of inflation has grown in that the krona has continued to depreciate from levels that were already low.

 

The Riksbank does not target the exchange rate. Monetary policy aims to maintain price stability. The target is 2 per cent inflation one to two years ahead. In the assessment of inflation, the exchange rate is an important factor. It directly affects import prices for intermediate and consumer goods and also has an indirect effect via inflation expectations and aggregate demand for Swedish goods.

 

The low exchange rate during a large part of the past decade has affected inflation but not as much as expected. A value of the krona that continues to be unduly low in the coming year will affect inflation prospects, particularly as resource utilisation is high. The krona's depreciation since the latest Inflation Report is the most important single factor that may lead to the inflation target being threatened 1-2 years from now.

 

One of the measures available to the Riksbank is currency-market intervention. This can be particularly motivated if pricing in the currency market deviates markedly from what can be considered fundamentally appropriate and if the price is moving away from what is fundamentally appropriate in a process that is liable to become self-generating.

 

The Riksbank will make a complete assessment of inflation and the consequences for monetary policy at the Executive Board meeting on 5 July.