Sweden’s central bank cut its benchmark rate by a quarter percent on Wednesday, implying two more cuts this year as policymakers focus on economic growth.
Riksbank’s executive board reduced the policy rate by 25 basis points, to 3.25 percent. This is the third reduction this year.
Further Cuts on the Horizon
The bank suggested further easing, stating that if the forecast for inflation and economic activity remains unchanged, the policy rate may also be lowered in the two policy meetings that are left this year.
The bank stated that at one of these sessions, a 50 basis point cut might occur. Additionally, the prediction calls for one or two more rate cuts in the first half of 2025.
“Together, these changes imply a relatively large shift of monetary policy in a more expansionary direction, which will improve households’ finances and make it easier for companies to invest,” the central bank stated.
Policymakers have seen a decrease in inflationary pressures, which is thought to be consistent with an inflation rate of about 2%. However, the inflation prognosis is not certain.
The bank also predicted that lower interest rates and low, steady inflation would support increased economic activity in the upcoming year.
The Riksbank will probably cut by at least 50 basis points during the last two meetings of the year, according to ING economists. According to them, Sweden is expected to achieve its terminal rate of 2-2.5 percent far earlier than others because it has an early start on the easing cycle.
Final Thoughts
Sweden’s central bank, the Riksbank, cutting its benchmark interest rate by 25 basis points reflects a clear shift in monetary policy toward stimulating economic growth. This marks the third reduction this year, signaling that the bank is prioritizing economic recovery over concerns about inflation.
With further cuts likely on the horizon, including the potential for a 50 basis point reduction in one of the remaining policy meetings of 2024, the Riksbank is positioning itself to foster household spending and business investment.
These measures come at a time when inflationary pressures are easing, aligning with the bank’s target inflation rate of around 2%. However, the uncertainty surrounding inflation forecasts could introduce risks to this strategy.
The Riksbank’s approach of early and significant easing contrasts with the more cautious stance seen in other central banks. Economists, like those from ING, suggest Sweden may achieve its terminal rate of 2-2.5% sooner than other economies, which could offer a competitive advantage by fostering earlier economic growth.
Yet, the long-term success of these cuts depends on the stability of inflation and the global economic environment. If inflation proves more persistent than expected, the aggressive rate cuts could lead to financial instability. Still, in the short term, these moves seem poised to improve Sweden’s economic activity and provide relief to both households and businesses, potentially setting the stage for stronger growth in 2025.
