Aug 19 2024: Sweden’s central bank is anticipated to lower its policy rate by 25 basis points to 3.50% on August 20, with further cuts expected by the end of the year as inflation pressures continue to diminish, according to a Reuters poll conducted on Monday.
All 16 analysts surveyed predicted a quarter-point reduction on Tuesday, with the policy rate projected to close the year at 3.00% before declining further in early 2025.
“Swedish inflation and activity data have been weaker than policymakers anticipated,” noted Adrian Prettejohn, Europe Economist at Capital Economics. “We believe this will prompt them to lower the key policy rate from 3.75% to 3.50% and to signal at least an additional 50 basis points of cuts over the remainder of the year.”
After the first rate cut in eight years in May, the central bank held the policy rate steady at 3.75% in June. At that time, it indicated that up to three more reductions could occur before the year’s end due to decreasing price pressures.
Headline inflation has continued to decline from its peak of over 10% in 2022, falling below the central bank’s 2% target for two consecutive months.
The economy has also slowed, with significant weakening observed in the manufacturing, household, and construction sectors during the second quarter.
As the U.S. Federal Reserve is expected to begin lowering interest rates in September, concerns that rapid rate cuts in Sweden could weaken the krona and reignite inflation have lessened. A minority of analysts now see potential for quicker rate reductions in Sweden this year.
“We maintain our forecast that the policy rate will be cut at all four upcoming monetary policy meetings, with a year-end policy rate at 2.75%,” said Nordea economist Torbjorn Isaksson. “We anticipate an additional rate cut early next year.”
However, with persistent inflation in the eurozone and the European Central Bank only expected to implement two more rate cuts this year, Swedish policymakers may exercise some caution.
The central bank of neighboring Norway held its key rate on August 15 and indicated that a tight stance might be necessary for some time to control inflation.
The Swedish central bank has three more rate-setting meetings scheduled this year after Tuesday, in September, November, and December.
The Riksbank will announce its policy decision at 0730 GMT.
