STOCKHOLM (Reuters) -The Swedish crown is clearly undervalued and its weakness is making it harder for the central bank to bring down inflation, Deputy Governor Martin Floden said on Wednesday.
"It (the crown weakness) is clearly not helping us in getting inflation down," Floden said in a speech.
He said that if the Riksbank finds tools that could support the crown it is ready to use them.
The bank has in recent months hedged its own foreign exchange exposure as it expects the crown to strengthen, he said.
"The Riksbank, one of the decisions in recent months, has been to actually hedge against our own FX exposure on the balance sheet because we anticipate the krona to appreciate sharply in the future," Floden said.
The Swedish currency trades at 11.92 against the euro, 7% weaker year-to-date.
The Riksbank has hiked rates to 3.75% from 0% in April last year. Tighter policy is having an effect with the economy slowing sharply, house prices falling and inflation, which peaked at over 10%, now easing.
But the Riksbank is still worried inflation could get stuck well above the 2% target and is expected to hike rates again on Sept. 21 and possibly also in November.
Inflation data for August is due on Sept. 14.
Floden said in the speech the bank expects inflation to fall quite quickly ahead but monetary policy needs to remain tight to get it back to the target.
"We are anticipating inflation to come down rather rapidly now," he said "It's going in the right direction, but it's not where we want it to be yet."