(Bloomberg) — Sweden’s Riksbank lowered its benchmark interest rate by 25 basis points and signaled its easing campaign is likely to be wrapping up with one cut left to deploy.
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The central bank in Stockholm cut the key rate to a two-year low of 2.5%, according to a statement on Thursday. Just one in 18 economists surveyed by Bloomberg expected unchanged rates, with all others predicting the move lower.
“If the outlook remains unchanged, the policy rate may be cut once again during the first half of 2025,” officials said, adding they will “carefully evaluate the need for future interest rate adjustments.”
The Swedish krona rose around 0.4% after the decision to trade at 11.48 per euro. The currency has fallen roughly 3% this year, pressured by a weakening economy.
Thursday’s reduction, the fifth in the Riksbank’s easing campaign intended to restart growth in the biggest Nordic economy, followed a half-point cut last month.
Having brought inflation under control, the Riksbank has turned its gaze on the Swedish economy, a laggard for three years. Output has yet to recover even as interest rates have abated from levels that had previously been seen before the financial crisis and some board members have expressed concerns inflation might even cement itself at too-low levels.
“All in all, today’s message from the Riksbank was more hawkish than expected,” Nordea Bank Abp’s chief analyst Torbjorn Isaksson said in a note to clients. “The bank is less concerned about the economy and the labor market, but sees more risks for the inflation outlook.”
He’s among analysts forecasting two cuts, as is Lars Kristian Feste, head of fixed income at Lannebo Kapitalforvaltning, who continues to expect reductions in both January and March to give “a real boost to growth” in the second half.
What Bloomberg Economics Says...
“The Riksbank Executive Board’s rate cut in the final meeting of the year is not the news of the day — a signal that there’s only one more coming in 1H25, is the main revelation. With the economy failing to recover, our view remains that the Riksbank will be forced to cut twice in early 2025, taking the policy rate to 2%. Clearly, though, the risks to that view have shifted toward less easing.”
—Selva Bahar Baziki, Sweden economist. Read more here.
The Swedish economy is very rate-sensitive, as many households hold mortgages fixed on short terms, meaning reductions in borrowing costs are transmitted to the real economy at a fast pace. The two-year tightening campaign that started in 2022 saw interest rates reach as high as 4% in 2023, significantly denting both consumer and industry confidence.