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Sweden is not really a country that comes to find when one talks about finance or currency trading. The Swedish Krona is a relatively small and insignificant player in the global market. Trading in Swedish Krona accounts for less than 2% of the global currency trades. However, the Krona is what many call a counter currency. This means that the Krona moves in the opposite direction to the world in general and Eurozone in particular. When the Eurozone currencies become stronger, the Krona becomes weaker and vice versa.
This year has been the worst year for the Swedish Krona is the past two decades. Amongst the major currencies, it has been the clear loser with the worst performance. In this article, we will look at some of the factors which have resulted in the downfall of the Swedish Krona.
Now, after a massive gap of 10 years, the interest rates have been lowered to -0.25%. The rates are still in negative territory. Unlike the Danish Krona, the Swedish Krona is not really pegged to any external currency. Hence, Sweden has full autonomy to manipulate currency prices and is using the same.
Many critics are worried that this constant devaluation may actually end up bringing in a currency crisis. However, the Swedish central bank seems confident. This is the reason why they are continuing with lower interest rates.
The markets are fairly confident that the Swedish bank will not raise interest rates. This is the reason why the Krona continues to slide down. Markets expect the interest rates to remain in the negative territory for quite some time in the foreseeable future.
The Swedish government charges a lot of taxes. However, it also gives out a wide variety of health and unemployment benefits. The Swedish culture is such that people do not expect the wages to increase too much. This is the reason why they are also opposed to an increase in prices.
The rate cut from -0.5% to -0.25% has caused an increase in prices. The Swedish government wants to avoid further increases at all costs. Hence, the rates may remain stable in order to enable the government to meet its inflation target.
Firstly, consumers will find that some goods around them have become more expensive whereas others have not! The ones with raised prices will be imported goods. This could be good news since the price differential will make people switch from imported goods to domestically manufactured ones. If this happens, the local industry is likely to receive a stimulus from this currency crisis.
Secondly, it needs to be noted that most imports are actually a part of Swedish exports. For instance, the Volvo car is a Swedish product. However, lots of spare parts which are used in the manufacture of the Volvo are imported. Hence, expensive imports are also threatening the competitiveness of Sweden’s fledgling export sector.
The bottom line is that there are mixed reactions on the downfall of the Krona. Some are perceiving at as a positive event whereas others are perceiving it as a negative event.
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