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Sweden Monetary Policy December 2024

Sweden: Central Bank decreases rates in December

25 basis point cut meets market expectations: At its meeting on 19 December, the Riksbank decided to cut its policy rate by 25 basis points to 2.50%, effective from 8 January. The move had been priced in by markets and followed November’s 50 basis point cut; as a result, the policy rate has been reduced by a cumulative 150 basis points since May 2024 and stands at its lowest level in roughly two years.

Bank seeks to stimulate the economy: The decision aimed at supporting an ailing economy: GDP has swung in and out of the doldrums since Q3 2022, and the Riksbank determined that a further loosening of financing conditions to bolster household purchasing power would be appropriate. Moreover, the Bank assessed that inflation remains compatible with its 2.0% target, and forecasts price pressures to hover around target through 2027, giving it room to ease its monetary policy.

Small cut possible ahead, though downside risks loom: The Bank stated that it “may” reduce the policy rate once more in the first half of 2025, hinting at a final 25 basis point cut, after which it would keep rates unchanged through 2027. That said, the Bank struck a more hawkish tone than in its November meeting: The Riksbank noted that there are significant risks to the outlook for inflation and economic activity—including geopolitical tensions, global trade policy and Europe’s governmental crises—that could motivate a shift from its current forward guidance; in a subsequent statement, Governor Erik Thedeen stated that the Bank is prepared to hold rates should uncertainty rise. Still, with the Swedish economy weak, our Consensus is for just over 50 basis points of cuts by the end of 2025, though the spread is wide at 25–100.

The Bank will reconvene on 28 January, with the decision to be announced the following day.

Panelist insight: SEB’s Amanda Sundström and Olle Holmgren commented:

“With core inflation hovering near the target and growth remaining weak, the Riksbank is likely to cut the policy rate by another 25bps to 2.25% in January. The Board will probably remain cautious about sending strong policy signals but could acknowledge downside risks to the December rate path to subtly open the door for another rate cut. We continue to predict the Riksbank to cut the policy rate to 2.00% this year but have moved the second cut from March to May.”

Swedbank analysts were more dovish:

“We still believe that the Riksbank is too optimistic about near-term economic activity, including household consumption and GDP, and will need to cut rates below the rate path. For this reason, we maintain our forecast of 3 more rate cuts – the next already in January – eventually bringing the policy rate down to 1.75%.”

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