Swedish central banker Ekholm to join govt

[STOCKHOLM] Dovish Swedish central banker Karolina Ekholm will leave the Riksbank to join the government as a state secretary, the central bank said on Tuesday, confirming a report which helped to send the crown to a 3-1/2 month high against the euro.

Ms Ekholm has been one of the most consistently dovish members of the Riksbank's six person rate-setting executive board and the crown strengthened around 0.2 per cent to 9.065 to the euro on the news of her departure.

That was around the strongest level for the Swedish currency since June 19, underscoring market expectations that her move could herald a shift in the board's balance in favour of more hawkish policymakers.

However, analysts played down the likely impact of her move. "I think there is still a very high probability for the Riksbank to make monetary policy more expansionary (even without Ekholm)," said Robert Bergqvist, chief economist at banking group SEB.

The Riksbank cut interest rates by 50 basis points in July to fight persistently low inflation and some analysts have seen the chance of a further move in October after the ECB cut rates and announced a programme of bond buying.

Mr Bergqvist said stuttering growth in Europe and a stronger crown have increased concerns about slowing inflation even among the majority of the board who had previously been more focused on household debt levels. "We believe the Riksbank could cut by another 10 basis points down to 0.15 per cent," he said.

Swedish daily Dagens Industri said on Monday Ms Ekholm would join the finance ministry as a secretary of state - a coup for the incoming minority centre-left government.

However, with personnel changes at the Riksbank Council - which picks rate-setters - expected due to a new government, Ekholm's replacement at the central bank could take some time.

The central bank announces its next rate decision on Oct 28.

Ms Ekholm has trodden a relatively lonely path on the Riksbank board since she was appointed in 2009.

The central bank started hiking rates in July 2010 from a record low of 0.25 per cent and Ekholm was one of two on the six member board who wanted to wait due to uncertainty about debt problems in the euro area.

She was supported by Deputy Governor Lars Svensson, who left the bank in April 2013 when he warned that the more hawkish members of the rate-setting board were too focused on high household debt and not enough on tackling low inflation.

The rate cut in July brought rates back to their crisis level of 0.25 per cent. Consumer prices were flat in 2013 and the Riksbank does not expect them to rise this year either. The Riksbank targets inflation of 2 per cent.- Reuters