Sweden Central Bank Signals 2-3 Rate Cuts This Year

Sweden’s central bank maintained its benchmark rate unchanged on Thursday and signaled that the rate will be cut two or three times this year.

The Executive Board of Riksbank decided to leave the policy rate unchanged at 3.75 percent as new information indicates that inflationary pressures are largely as expected.

“Given that inflation is fundamentally developing favourably, economic activity is assessed to be somewhat weaker, and the krona exchange rate is a little stronger, the forecast for the policy rate has been adjusted down somewhat,” the bank said.

“If inflation prospects remain the same, the policy rate can be cut two or three times during the second half of the year,” the bank said.

The bank downgraded its 2024 inflation outlook to 3.1 percent from 3.5 percent and that for 2025 to 1.3 percent from 1.5 percent.

The central bank sharply raised its economic growth projection for this year to 1.1 percent from 0.3 percent. However, growth forecast for 2025 was trimmed slightly to 1.7 percent from 1.9 percent.

Capital Economics’ economist Jack Allen-Reynolds said Riksbank will cut rates three times this year.

ING economist James Smith said even as the US Federal Reserve and the European Central Bank remain cautious on the timing of future easing, higher interest rate sensitivity as well as a more predictable path to lower wage growth makes an easier case for the Riksbank to keep lowering rates.

Smith forecasts the next rate cut at the August meeting, with a total of three reductions this year.