A surprising move by the Bank of Sweden. The crown gains

The Bank of Sweden (Riksbank) raised the reference rate today from 0 to 0,25 percent. and signaled the possibility of further increases later in the year. The bank's management board also decided to immediately stop buying Treasury bills and reduce the pace of asset purchases in the second half of the year.

Such decisions and announcements could have surprised investors. For they mark a sharp shift compared to what riksbank communicated a month ago.

A plan to fight inflation

The change in the attitude of the bank's management board members is supposed to be a reaction and an attempt to counteract violently rising inflationwhich rose to 6 percent in March and was the highest in more than three decades.

The Riksbank Council, motivating its actions and plans, referred to the increased uncertainty in the global economy, which may be related to, inter alia, with Russia's attack on Ukraine and the ongoing war, and the return of strict covid restrictions in China.

By tightening monetary policy, the Riksbank expects that in 2023 inflation will fall and in 2024 it will be close to 2 percent.

Stronger crown

In response to the Riksbank's decision, the Swedish krona appreciated by approx. 1%. in relation to the euro, and the EUR / SEK rate fell from 10,37 to 10,25. The USD / SEK exchange rate, in turn, fell from 9,85 to 9,70, while previously the Swedish krona gradually depreciated against the US dollar. In January this year. the US dollar cost SEK 8,20, and in March the USD / SEK exchange rate exceeded the level of 10,00.

The Riksbank seems to be joining the ranks of the hawkish central banks of the world, and the announcements indicate that they are determined to continue. As a result, the impact on the Swedish krona may be significant, hence the USD / SEK or EUR / SEK pairs may attract the attention of some investors.