Presiding over one of 2016's worst performing currencies in the developed world would normally be an unwanted accolade, but for Sweden's Riksbank it is a proof its gamble on negative rates and money-printing has so far paid off. After being criticised for being too hawkish a few years ago, the central bank was slated again in March for launching what was seen as a hopeless currency war against the European Central Bank's 2.3 trillion euro ($2.45 trillion) "big bazooka" quantitative easing programme.
The ECB move was designed to lift inflation, partly by weakening the euro. Riksbank critics say rates at -0.50 percent and a 245 billion Swedish crown ($26.7 billion) bond-buying programme risk economic stability, add fuel to an overheated housing market and leave the bank with little ammunition should inflation stagnate.
But for the moment the Riksbank has gained credibility by forcing up prices and keeping the crown weaker against its euro competitor than the ECB's actions might imply. "Our measures have succeeded in keeping the crown at a weak level and growth was very good in 2015," Riksbank Deputy Governor Per Jansson told business daily Dagens Industri on Tuesday. "We wouldn't have got that result if we had not followed the policy we have."
The currency has weakened nearly 6 percent against the euro and 9 percent against the dollar this year - only sterling has depreciated more. Headline consumer prices rose at their fastest pace for more than four years in November.
At the same time, while much of Europe is still worried by sluggish growth, Sweden's economy is steaming ahead. Growth was 4.1 percent in 2015 and the economy is on track to expand of more than 3 percent in 2016 - easily outpacing 1.5 percent and 1.7 percent respectively seen for the euro zone.
"You can say that the Riksbank has taught the market a lesson," said Henrik Unell, currency strategist at Nordea. It was not always so. Only a couple of years ago, the Riksbank's credibility was in tatters, with what amounted to a civil war between hawks and doves on the board over how to deal with surging household debt.
The doves lost and Nobel laureate Paul Krugman said the resulting tough policy risked a Japan-style deflationary spiral. Then came the abrupt policy change. But there are risks from the negative rates and quantitative easing. House prices have nearly doubled in the last decade and debt levels are among the highest in Europe with the EU's financial risk watchdog the latest to issue a warning about the dangers.
Many Swedes have interest-only mortgages, so pay next to nothing on a monthly basis and there are also good tax incentives for ownership. Any change to this could cause sharp falls in real estate prices, even if there is a housing shortage. "Monetary policy has very little effect on the economy right now," said Thomas Elofsson, portfolio manager at fund firm Catella. "On the other hand, it has a very big effect on asset prices."
While inflation is picking up, the strength of the upturn also remains in question. The Riksbank cut its forecast in October, but November inflation was still slightly below the central bank's updated view. With rates so low and QE set to soak up 40 percent of the stock of outstanding government bonds for the Riksbank to buy, it could run out of options should the global economic recovery falter.
Meanwhile, for the currency to boost inflation further to meet Riksbank targets, it needs to weaken from its current levels of around 9.74 to the euro, which analysts say are well above its fair value of around 9. "What happens in spring if we get a few quarters of uncertainty and weaker growth in Europe...?" said Anders Eklof, chief currency strategist at Swedbank. "There is not much more they can do."
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