Mar 27 2024: Sweden’s central bank, as anticipated, maintained its key rate at 4.00% on Wednesday and indicated that easing monetary policy could commence with the first of several rate cuts in the coming months.
The central bank noted that inflationary pressures have eased, bringing headline inflation close to its 2% target after reaching over 10%. The outlook suggests a continued decline in inflation levels.
However, economic growth in significant sectors has stalled, and many households are grappling with mortgage payments at levels not seen in over 15 years.
The central bank stated, “It is likely that the policy rate can be cut in May or June if inflation prospects remain favourable.”
While expressing caution about potential setbacks and the impact of looser policy on the Swedish crown’s strength, the central bank emphasized a gradual approach to adjusting monetary policy through incremental rate cuts.
The Riksbank’s forecast predicts the policy rate to be at 3.44% by the fourth quarter.
Analysts anticipate a 25 basis point rate cut in either May or June, with potential for three more cuts before the year concludes, according to Andrew Kenningham, Chief Europe Economist at Capital Economics.
Following the announcement, the Swedish crown marginally weakened against the euro, maintaining a relatively weak position on a trade-weighted basis for the year against the euro.
Globally, central banks are contemplating the timing of policy easing, with the Swiss National Bank leading the way recently, and expectations for moves from the U.S. Federal Reserve and the European Central Bank in June.
In February, the Riksbank signaled that rates had peaked and hinted at possible policy easing in the first half of the year.
The last rate cut occurred in early 2016, reaching -0.50%, the lowest level ever recorded. Negative or zero rates persisted until 2022, when heightened geopolitical tensions due to Russia’s invasion of Ukraine led to a rapid increase in borrowing costs.
A Reuters poll had forecasted no rate change this month and predicted the central bank to indicate a potential rate cut in May or June, aligning with expectations of multiple cuts throughout the year.
The Riksbank is scheduled to announce its next monetary policy decision on May 8.