Central Bank resumes monetary policy easing in June

Quarter-point cut meets market expectations: At its meeting on 17 June, the Riksbank resumed its monetary policy loosening cycle, cutting the policy rate by 25 basis points to 2.00%. The move had been priced in by markets and brought cumulative rate reductions to 200 basis points since May 2024. As a result, the policy rate stands at its lowest level in nearly three years, though it remains elevated compared to the pre-pandemic 10-year average.

Softer-than-anticipated inflation and economic recovery drive move: The Riksbank assessed that the economy was recovering at a slower pace than forecast at its March meeting and deemed that rising global economic uncertainty would weigh on domestic activity. As a result, the Bank downgraded its forecast for GDP growth in 2025 to 1.2% from 1.9%. Policymakers noted that inflation had evolved in line with forecasts in recent months, having jumped at the outset of 2025 mainly due to temporary factors. The Bank expects subdued domestic demand and a stronger krona to temper inflation by December, at a faster-than-previously-anticipated rate. Still, the Bank highlighted that the outlook for inflation and economic activity remains clouded by trade disputes and geopolitical tensions abroad, likely dissuading a larger cut.

Slight easing possible by December: In its communiqué, the Riksbank cut its average policy rate forecast for 2025 to 2.1%, from 2.3% previously. As a result, the Bank left room for further easing by December should economic recovery require more accommodative monetary policy and inflationary risks fail to materialize—especially those associated with supply chain disruptions and trade tensions. Moreover, in a subsequent statement, Governor Erik Thedéen said that there is “some probability” of another rate reduction this year. Our Consensus is for GDP growth in 2025 to outpace the Riksbank’s forecast and, as a result, a slight majority of our panelists see the Bank holding fire by December. Still, others see room for 25–50 basis points of further cuts. The Bank’s next meeting is scheduled for 19 August, with its monetary policy decision to be announced the following day.

Panelist insight: Analysts at Nomura commented: “We forecast that the Riksbank will leave its policy rate unchanged for the foreseeable future following today’s 25bp cut. However, we acknowledge that the dovish tilt to today’s communication raises the probability of another cut. This would likely occur towards the end of the year, if GDP growth misses the Riksbank’s forecast or inflation falls faster than expected.” SEB’s Olle Holmgren and Dana Malas were more dovish: “The policy rate path was slightly lower than we expected and we revise our own forecast and now predict the policy rate to be lowered to 1.75% in September. At the press conference governor Thedéen acknowledged that the rate forecast indicated a small possibility for a rate cut already in August but also highlighted the geopolitical situation and the war in the Middle East and that policy will adapt if the outlook changes.”

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