The Riksbank lowered the so-called policy rate by 0.25 percentage points to 3.25 percent, as expected stopping short of a "double cut", i.e. 0.5 percentage points.
But it said such a cut could be on the cards sooner rather than later.
"If the outlook for inflation and economic activity remains unchanged, the policy rate may also be cut at the two remaining monetary policy meetings this year. A cut of 0.5 percentage points is possible at one of these meetings," said the bank in a statement.
Since May this year, Sweden's interest rate has dropped 0.75 percentage points, from 4 to 3.25 percent.
"Moreover, the forecast indicates one or two further rate cuts during the first half of 2025. The policy rate is thus expected to be cut at a clearly faster pace than was previously communicated, which contributes to stronger economic activity and an inflation rate close to the target," said the bank.
It described the next wave of potential rate cuts as a "relatively large move towards more expansive fiscal policy, which will improve household finances and make it easier for companies to invest".
The bank said that the risk of rising inflation had subsided, but that the Swedish economy was recovering more slowly than desired.
Although inflation in August was at 1.2 percent, below the bank's 2 percent target, it warns that the Swedish economy needs to strengthen further in order to stabilise the inflation rate.
"Inflation and economic outlooks are uncertain," it added. "There are risks linked to the Swedish economy's recovery, geopolitical unrest and the exchange rate of the krona, among other things, which could lead to inflation developing in a different direction, and fiscal policy taking on a different shape."
In its own prognosis, the bank expects the key interest rate to reach 2.61 percent by the first quarter of 2025 (this is an average figure for the quarter as a whole) and 2.38 percent by the second quarter of 2025, stabilising at 2.25 percent in 2026 and 2027.
The bank's policy rate decision from September 25th will come into force on October 2nd, so it may take a few days for it to be reflected in mortgage rates.
Future policy rate decisions are expected on November 7th and December 18th.
Why is the policy rate important?
The policy rate is the central bank’s main monetary policy tool. It decides which rates Swedish banks can deposit in and borrow money from the Riksbank, which in turn affects the banks’ own interest rates on savings, loans and mortgages.
If bank interest rates are high, it’s expensive to borrow money, which means people spend less and as a result inflation drops.
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