BLBG:Borg Joins Wheeler in Escalating Response to Currency Gains
Sweden’s government abandoned its hands-off stance on the krona and New Zealand announced it sold the kiwi, joining a growing band of countries to escalate their response to strengthening currencies.
The New Zealand dollar plunged after Reserve Bank Governor Graeme Wheeler said the central bank sold the kiwi and can do so again to protect economic growth. In Sweden, the krona slipped after Finance Minister Anders Borg said its appreciation warrants central bank consideration.
“The krona could become an issue, particularly from the central bank perspective; there are some good arguments for them to consider how to look at the krona,” Borg said yesterday in an interview in Abuja, Nigeria. “It should be based on fundamentals and obviously priced on the market, but there are also some risks you’ll see too much of an appreciation. That’s obviously one of the worries we have.”
Sweden, which exports half its economic output, is reversing course after earlier this year vowing not to interfere with the exchange rate. Borg joins policy makers from Japan to Switzerland to Israel, all struggling to contain appreciations that have hurt their exports. In Turkey, the central bank’s gauge for measuring lira strength signals a rate cut is needed to adjust the exchange rate.
More Countries
“More and more countries will end up adopting monetary policies where their currencies become part of their monetary policy,” Paul Lambert, head of currency and fixed income at Insight Investment Management Ltd., said today at a Euromoney conference in London. “In that world, it will become increasingly difficult to hang together the kind of collegiate economic environment that we’ve grown used to in the last 10 or 20 years.”
In Japan, the yen sank 20 percent against the dollar in the past six months, the most among major currencies, in anticipation of expanded easing by Prime Minister Shinzo Abe’s pick to run the central bank.
At his first policy meeting on April 4, Bank of Japan Governor Haruhiko Kuroda pledged to double monthly bond purchases to about 7 trillion yen ($70.9 billion), focused mainly on longer-maturity Japanese government bonds. The stimulus program under Governor Masaaki Shirakawa, who stepped down in March, focused on notes maturing in one to three years.
‘Aggressive Comments’
“Central banks who haven’t had a need to cut rates are seeing that their currencies have appreciated and they are having to lean against this strengthening pressure,” Michael Sneyd, a currency strategist at BNP Paribas SA in London, said today by phone.
“New Zealand is where we’ve had the most aggressive comments and action. It is causing some long kiwi positions to be taken out,” he said. A long position is a bet the price of an asset will rise.
The Reserve Bank of New Zealand publishes monthly figures for its net currency sales that may or may not involve direct intervention, which show it sold NZ$2 million ($1.7 million) in March, and NZ$199 million in December. It had an intervention capacity of NZ$8.7 billion at March 31, the data show.
Developed Markets
The Swedish krona’s 6.7 percent appreciation over the past 12 months is the best performance in a basket of 10 developed- market currencies tracked by Bloomberg in the period, after the New Zealand dollar.
Wheeler’s announcement today marked the first time that New Zealand’s central bank confirmed a currency intervention since June 2007, when it sold New Zealand dollars. The move sent the kiwi down as much as 1.1 percent to 83.60 U.S. cents, the lowest level since April 1.
The krona has soared about 28 percent against the euro since the end of 2008, sparking calls from Swedish exporters to stem its ascent. Riksbank Governor Stefan Ingves acknowledged last month the strong krona has undermined the bank’s efforts to achieve its inflation target.
In neighboring Norway, the central bank will probably keep its benchmark deposit rate at 1.5 percent today, according to a Bloomberg survey, even as credit growth and property prices continue to rise from records. Governor Oeystein Olsen has warned he’s ready to cut rates should krone strength persist.
In South Korea, Kim Seong Wook, a director in the finance ministry, said today the government will closely monitor any “unnecessary movement” that boosts exchange-rate volatility.
Forecasts Cut
Borg last month cut his forecasts for the largest Nordic economy, citing the krona’s impact on exports and unemployment. The Riksbank on April 17 said it needs to delay monetary tightening plans until the second half of 2014 as it forecast price growth won’t reach its 2 percent target until 2015. Borg estimates Swedish unemployment will reach 8.4 percent in 2014, the highest rate in Scandinavia.
“There is a rebalancing of the Swedish economy,” Borg said. “We had a very weak currency for quite some time, but obviously we don’t want to see an excessive appreciation of the currency, so this is an issue that we’ll have to follow very carefully. I mean, we still want to keep our industry quite competitive.”
The krona has gained 4.1 percent against the euro in the past year and traded at 8.5453 per single currency unit yesterday. It slipped as much as 0.16 percent to 8.5591 today.
Sweden’s National Institute of Economic Research in March predicted the krona will reach 8.44 against the euro this year and at 8.41 in 2014. HSBC Holdings Plc last month estimated it will reach 8.10 per euro by the end of the year.
“I think we have a very high degree of market credibility with an AAA rating,” Borg said. “If anything, we’re actually seeing a little bit too much confidence in the krona.”
To contact the reporters on this story: Maram Mazen in Abuja at mmazen@bloomberg.net Chris Kay in Abuja at ckay5@bloomberg.net
To contact the editor responsible for this story: Jonas Bergman at jbergman@bloomberg.net NI NIGERIA NI SWEDE NI POL NI GOV NI ECO NI BUD NI INF NI LABOR NI SWECO NI FX NI BON NI FRX
