Sweden: Riksbank resumes loosening cycle in August
Latest bank decision: At its meeting on 19 August, the Riksbank announced that it was resuming its loosening cycle and cutting the policy rate by 25 basis points to 3.50%. The reduction had been priced in by markets.
Monetary policy drivers: The key domestic factors influencing the Riksbank’s decision to resume rate cuts included positive developments regarding inflation and negative ones regarding GDP growth. With regards to inflation, price growth has remained in line with the Bank’s projections at its last meeting in June; moreover, the risks of inflation remaining too high have subsided as wage growth is expected to be moderate. With regards to GDP growth, the Bank’s cut aims to support the economy as activity has recently been weak.
Policy outlook: The Riksbank’s forward guidance turned more dovish, with it suggesting up to three rate cuts by the end of the year if inflation prospects do not change. That said, the Bank still called for caution as risks to the outlook for inflation and activity remain, including those stemming from geopolitical uncertainty and the performance of the krona.
The next meeting is set for 24 September, with the decision to be announced the following day. Roughly half of our panelists see another 25 basis point cut at the September meeting, while the rest see further cuts only in Q4.