The concerns ended euphoria following Monday's cut in interest rates from the emergency level of 75 per cent and may force the central bank to raise its basic lending rate back to punishing heights, dealers said yesterday.
'The big concern is political instability and uncertainty over the economic future for Sweden, and there must be speculation about devaluation,' Lars Salander, chief credit market dealer at Posten Finans, said.
Interest rate yields on Swedish three-month treasury bills rose more than 8 percentage points to close at 27.5 per cent. Eleven-year bond yields rose 43 basis points to 11.23 per cent.
The krona closed slightly weaker against the ecu. Rumours were rife in London that the Swedish authorities would uncouple the currency from the ecu imminently.
The central bank had set its marginal lending rate at 20 per cent on Monday, backing off from the shock level of 75 per cent imposed last week to halt a flight from the krona over devaluation worries. The speculation had been spurred by the flotation of the Finnish markka.
But with renewed pressure on the lira after its devaluation and questions resurfacing about the pound, the krona was once again seen as vulnerable.
'It is a European concern which is spreading to us,' said Kjell Nordin, the central bank's chief dealer, referring to the credit market interest rate rises.
Stefan Wictorin of Midland Montagu Bank in Stockholm said Sweden's marginal lending rate may now be too low to keep nervous investors in the krona.Reuse content