Sweden’s currency weakened against the euro on Thursday after a round of inflation data undershot expectations, adding fuel to concerns over the Riksbank’s cautious stance on tightening monetary policy. 

The krona was off 0.41 per cent following the release of the inflation report, with one unit of the common currency buying SKr10.33.

Consumer prices rose 2 per cent in March from the same month in 2017 on a fixed interest rate basis, according to data from Statistics Sweden. Economists surveyed by Reuters had forecast a 2.1 per cent increase, from 1.7 per cent in February. 

Antje Praefcke, analyst at Commerzbank, noted ahead of the report that the inflation data would be of “great importance” to Riksbank policymakers. 

She said:

If it disappoints the likelihood of Riksbank further adjusting its rate path to the downside will rise despite solid growth. Just to remind you: the inflation data for January resulted in bitter disappointment and already caused some members of Riksbank’s Executive Board to frown.

Sweden’s central bank has held rates in negative territory for the past three years, even as its developed market counterparts have been slowly shifting away from such stimulative monetary policy. 

The increased policy divergence has weighed on the krona, which rarely trades above the SKr10 level outside of times of crisis. The currency is off 4.92 per cent this year; that contrasts a 2.4 per cent rise for the Norwegian krone, which typically trades in line with the krona. 

A gloomy report on Sweden’s housing market added to the downbeat sentiment on Thursday. Real estate prices declined 1 per cent in the first quarter of this year compared with the previous quarter, according to Statistics Sweden. 

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