Sweden's Krona Soars as Debt Office Bets Against the Riksbank

(Bloomberg) -- The Swedish Debt Office has an odd way of saying happy birthday.

Just as the central bank was hosting a conference to celebrate its 350th anniversary, the debt agency triggered a rally in the krona. The office said it will position for a stronger exchange rate, inserting itself into a debate over whether the Riksbank has been damaging Sweden’s economy with its efforts to weaken the currency.

The central bank has embarked on an historic monetary easing program over the past years to bring back inflation, using a weaker krona to help achieve its goal. But criticism has grown recently as the currency fell close to a record low against the euro, even causing some policy makers to question whether they’d gone too far.

In an interview at the Riksbank’s birthday conference on Friday, the director general of the agency, Hans Lindblad, said it’s within the agency’s mandate to take a position on the krona to keep down costs. He declined to say whether he had discussed the move with the Riksbank ahead of time.

Read More: Investors concerned about the weak krona

The krona was up 0.6 percent at 10.20 per euro as of 12:28 a.m. in Stockholm.

Stefan Mellin, an analyst at Danske Bank A/S, said the debt agency has earlier been turned down when it asked the government for an enlarged mandate to take positions in the krona, in part after the Riksbank thought it would be at odds with monetary policy. “So in that respect this is a barn burner, that they go through with this,” he said. “This is clearly at odds with the Riksbank’s interest, which is surprising.”

Riksbank Deputy Governor Cecilia Skingsley declined to comment, saying “we will let the birthday child speak for itself,” referring to the day’s festivities. Party guests on Friday included Federal Reserve Governor Jerome Powell and the Bank of England’s Mark Carney among others.

Riksbank Deputy Governor Per Jansson opted for some gallows humor, walking up to Lindblad at the conference in front of reporters and saying, “It’s also said that the murder of Gustav III was the fault of the debt office.”

The debt office was created to fund the king’s war with Russia in 1778. Back then, the agency issued a lot of bank notes, leading to “a lot of trouble” and triggering a string of events that ultimately resulted in the murder of the king at a masquerade ball, according to the Riksbank.

Agustin Carstens, the head of the Bank for International Settlements, also weighed in an interview with Bloomberg TV in Stockholm. When it comes to keeping an eye on currencies it should be a shared responsibility, he said. “But in the end someone has to prevail and I would give it to the central bank,” he said.

The agency on Friday said it will build up a position as big as 7 billion kronor ($800 million) gradually and at various exchange-rate levels. The debt office also took a tactical position on the krona back in 2009, when it bought 50 billion kronor.

“This is a much smaller amount compared to the last time they took a position for a stronger krona, and that time they didn’t have the Riksbank against them,” Mellin said. “So now there is an opposition against this decision. One shouldn’t underestimate the signal value of this and we might get a follow through in the move of the krona.”

(A previous version of this story was corrected to fix spelling of a name.)

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