Although many economists had been hoping for a "double cut" – i.e. 0.5 percentage points – the 0.25 cut was expected.
"Over the course of the year, inflation has fallen and inflationary pressures have stabilised in line with the [2 percent] target. At the same time, growth has been weak. The Riksbank has cut the policy rate gradually but at a rapid pace. Lower inflation and lower interest rates contribute to stronger purchasing power for households and support economic activity," said the central bank in a statement.
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It warned that the Swedish economy remains weak, despite signs that it's starting to pick up pace.
It said that it would exercise caution when deciding on future interest rate cuts, but added that if the current inflation and economic outlook remains unchanged, it may, as previously indicated, cut the policy rate again during the first half of 2025.
"The interest rate has been reduced rapidly and monetary policy affects the economy with a lag. This argues for a more tentative approach when monetary policy is formulated going forward," it said.
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But it warned that there are several factors that could change the forecast.
"There is particular uncertainty regarding developments abroad, for instance with regard to the geopolitical tensions, lack of clarity regarding trade policy and the governmental crises arising in Europe. There are also risks linked to the recovery in the Swedish economy and the krona exchange rate," it said.
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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