Swedish central bank: Cuts to key interest rate in May or June 'likely'
Sweden's Riksbank on Wednesday left the country's main interest rate unchanged at 4 percent, with cuts in May or June "likely".
"Inflation is in the process of stabilising at the [2 percent] target, but inflationary pressures are still somewhat elevated," the bank wrote in a press release accompanying the announcement.
It was widely expected that the bank would choose to keep the key interest rate unchanged at 4 percent, the highest level since 2008.
"It is likely that the [key interest] rate can be cut in May or June if inflation prospects remain favourable," it added.
According to the bank's forecast, it expects to lower the key interest rate three times over the next year, reaching 3.2 percent by the first quarter of 2025 – significantly lower than the 4.1 percent prediction from its November 2023 forecast.
The bank also revised its forecasts for GDP and CPI (consumer price index) inflation. GDP is expected to stand at 0.3 percent this year, up from the previous prediction of -0.2 percent, CPI inflation is predicted to stand at 3.5 percent, down from the previous prediction of 4.4 percent, while the prediction for CPIF inflation (consumer price index with a fixed interest rate, the measure favoured by the Riksbank), remains the same at 2.3 percent for 2024.
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There are a few possible risk factors which could affect these predictions, it writes, including new supply shocks due to geopolitical unrest, the krona continuing to weaken, or companies' pricing behaviour not changing as expected.
Experts from major Swedish banks welcomed the decision, adding that the Riksbank may lower the key interest rate more often than suggested in its forecast.
"We think there will be even more drops to the interest rate," head analyst at Nordea, Susanne Spector, told TT newswire, adding that there is a "high chance" that the rate could be lowered as soon as May.
SEB agreed, predicting four drops to the interest rate and a "slightly higher chance" of a drop to the rate in May rather than June.
"For households under pressure an earlier drop is positive," SEB interest strategist Amanda Sundström told TT.
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"Inflation is in the process of stabilising at the [2 percent] target, but inflationary pressures are still somewhat elevated," the bank wrote in a press release accompanying the announcement.
It was widely expected that the bank would choose to keep the key interest rate unchanged at 4 percent, the highest level since 2008.
"It is likely that the [key interest] rate can be cut in May or June if inflation prospects remain favourable," it added.
According to the bank's forecast, it expects to lower the key interest rate three times over the next year, reaching 3.2 percent by the first quarter of 2025 – significantly lower than the 4.1 percent prediction from its November 2023 forecast.
The bank also revised its forecasts for GDP and CPI (consumer price index) inflation. GDP is expected to stand at 0.3 percent this year, up from the previous prediction of -0.2 percent, CPI inflation is predicted to stand at 3.5 percent, down from the previous prediction of 4.4 percent, while the prediction for CPIF inflation (consumer price index with a fixed interest rate, the measure favoured by the Riksbank), remains the same at 2.3 percent for 2024.
EDITOR'S PICK:
There are a few possible risk factors which could affect these predictions, it writes, including new supply shocks due to geopolitical unrest, the krona continuing to weaken, or companies' pricing behaviour not changing as expected.
Experts from major Swedish banks welcomed the decision, adding that the Riksbank may lower the key interest rate more often than suggested in its forecast.
"We think there will be even more drops to the interest rate," head analyst at Nordea, Susanne Spector, told TT newswire, adding that there is a "high chance" that the rate could be lowered as soon as May.
SEB agreed, predicting four drops to the interest rate and a "slightly higher chance" of a drop to the rate in May rather than June.
"For households under pressure an earlier drop is positive," SEB interest strategist Amanda Sundström told TT.
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