Sweden: Central Bank eases its stance further in January
25 basis point cut meets market expectations: At its meeting on 28 January, the Riksbank decided to cut the policy rate by 25 basis points to 2.25%. The move had been priced in by markets and followed December’s same-sized cut; as a result, the policy rate has been reduced by a cumulative 175 basis points since May 2024 and stands at its lowest level in just over two years.
Bank gives helping hand to domestic demand: The cut aimed to continue to support household budgets and investment; the Riksbank noted that activity has shown signs of recovery but remains weak, as the effect of past monetary policy loosening has yet to fully filter through the real economy. Moreover, the Bank reiterated that inflation has remained at levels that are consistent with its 2.0% target, giving it room to ease its stance.
One more cut likely this year: The Riksbank noted that the outlook for inflation and economic growth remained largely stable from its December meeting, at which it forecast maintaining the policy rate at 2.25% through 2027. Thus, the Bank stated that it would consider the “need” for interest rate adjustments moving forward. That said, the Riksbank pointed to uncertainty tied to geopolitical tensions, global trade policy and Europe’s governmental crises, which could motivate a shift from its current forward guidance; in a subsequent statement, Governor Erik Thedeen stated that “the path is not set in stone”. Still, with the Swedish economy weak, our Consensus is for an additional 25 basis point cut by the end of 2025.
The Bank will reconvene on 19 March, with the decision to be announced the following day.
Panelist insight: Analysts at Swedbank commented:
“The Riksbank seems content with the current level of the policy rate given signs that an economic rebound is on the way, and the overall outlook for inflation and real economy is unchanged. This balanced communication leaves all options on the table. The Riksbank is truly data dependent. Since we believe macro data will be slightly weaker than the Riksbank forecast in the near-term, we stick to our forecast that the Riksbank will cut the policy rate in March by 25 bps.”