Sweden Suffers $653 Million Loss on Swiss Move to Drop Peg
(Bloomberg) — Sweden will take a 5.5 billion-krona ($653 million) loss after Switzerland’s surprise move to abandon its euro peg last month, the nation’s debt agency revealed.
The National Debt Office faces an extra 8 billion kronor in interest payments this year because of the weakening krona, according to a borrowing report released yesterday. The agency said its net borrowing will rise to 80 billion kronor this year, 29 billion kronor higher than forecast in December.
“The main reason why interest payments increase this year compared with the previous forecast is that the currency exchanges losses realized are expected to be higher,” the debt office said. “The weakening of the krona against the Swiss franc after the unexpected decision of the Swiss central bank to abandon the link to the euro is expected to result in losses of around 5.5 billion kronor in the coming months.”
The Swiss central bank on Jan. 15 shocked the markets by giving up its three-year-old cap against the euro, sending its currency soaring. It has surged 11 percent against the euro and 12 percent against the Swedish krona this year.
The Swedish debt office wasn’t the only one caught wrong- footed. Citigroup Inc., Deutsche Bank AG and Barclays Plc also suffered trading losses, people familiar with the events said.
The debt office said that realized currency exchange losses are also driven by the strengthening dollar. The krona has slid 13 percent over the past year against a correlation-weighted basket of nine other major currencies, making it the worst performer. It’s down 29 percent against the U.S. dollar and 6 percent against the euro.
Sweden’s central bank is pushing the exchange rate lower by cutting rates to a negative this month and starting bond purchases as it seeks to jolt the economy out of a deflationary spiral. Riksbank Deputy Governor Per Jansson also signaled Thursday the bank wouldn’t tolerate krona gains, saying it would be “game over” for the bank’s deflation fight if it strengthened sharply from current levels.
We will “act” if that happens, he said.
To contact the reporter on this story: Love Liman in Stockholm at jliman1@bloomberg.net To contact the editors responsible for this story: Jonas Bergman at jbergman@bloomberg.net Niklas Magnusson
