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Sweden Monetary Policy November 2023

Sweden: Riksbank surprises markets and pauses tightening cycle in November

At its last scheduled meeting of the year on 22 November, the Riksbank held the policy rate at 4.00%. The move, which took most market analysts by surprise, followed a cumulative 400 basis points worth of hikes since April 2022.

The hold was motivated by easing price pressures, given downward trending inflation in recent months—headline and core inflation have both reached their lowest levels since Q2 2022 despite an abnormally weak krona. The current restrictive policy rate is expected to support the ongoing disinflation trend towards the Riksbank’s target of 2.0% by 2024. That said, both economic growth and the labor market have shown signs of being strained by the contractionary policy stance.

In its communiqué, the Bank’s forward guidance stated that the policy rate could be raised further “if the prospects for inflation deteriorate”. Meanwhile, the Bank’s forecast for the policy rate in 2023 and 2024 was unchanged from September’s monetary policy report. The next scheduled meeting is set for 31 January, with the policy decision to be announced the following day. In light of November’s surprise hold, our panelists are reviewing their forecasts for the policy rate; currently, the Consensus is for rates to be cut before the end of 2024.

Jesper Hansson and Carl Nilsson, analysts at Swedbank Macro Research, commented on the outlook:

“The Riksbank […] is showing signs of being more forward-looking and less troubled by inflation. We noticed a shift in communication and expect the policy rate to have peaked, despite that the rate path maintains a slight probability of one more hike. […] We are maintaining our forecast of a first rate cut in June 2024 with the policy rate reaching 2.5% in the second half of 2025.”

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