(Bloomberg) -- The krona may get a helping hand from pro-growth policies by Sweden’s new government.
More expansive fiscal policy should improve the prospects of the $500 billion economy at a point when growth is expected to slow, boosting the chances of interest-rate rises by the Riksbank, according to Swedbank AB. A deal between political parties paved the way for Stefan Lofven to govern Sweden for a second term after agreeing concessions including lower taxes.
“This should be slightly supportive for the krona over time,” said Anders Eklof, a strategist at Swedbank, predicting the krona will advance almost 5 percent over the course of the year to 9.80 per euro, in line with forecasts in a Bloomberg survey.
The deal to create a coalition ended a four-month political impasse in Sweden, with Parliament backing Lofven Friday. That reduces uncertainty for investors and should help markets focus on the fundamentals when evaluating the currency, according to Credit Agricole SA.
“In the big scheme of things, the Riksbank should tighten monetary policy gradually and that should at least put a floor below the krona,” said Manuel Oliveri, a strategist at Credit Agricole, seeing a 6 percent rally to 9.60 per euro by the end of the year. “In order to trigger sustained krona upside, we need more evenly improving global risk sentiment.”
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