Sweden: Riksbank cuts rates as anticipated in September
Quarter-point cut meets expectations: At its meeting on 24 September, the Riksbank decided to cut the policy rate by a further 25 basis points to 3.25%. The quarter-point reduction, which mirrored August’s, has been priced in by markets.
Economy in need of help: The key factors influencing the decision to cut rates further included the fact that price pressures have eased to levels that the Bank deems compatible with its targeted 2.0% inflation rate. Moreover, upside risks to inflation have diminished, and the economic recovery has been slower than the Bank initially anticipated. These factors led the Bank to favor a rate cut in order to support economic activity, household budgets and investment.
Easing cycle to continue in Q4: The Riksbank’s forward guidance turned more dovish, putting a 50 basis points cut on the table at one of its two remaining meetings this year; in August, the Bank had only contemplated a 25 basis point cut for both meetings. The Riksbank also issued forward guidance for 2025 for the first time, signaling one or two further cuts during the first six months of 2025. That said, the Riksbank noted risks to the inflationary outlook remain, particularly relating to geopolitical tensions and the krona’s weakness, suggesting upside risks to these policy rate projections.
The next meeting is scheduled for 6 November, with the decision to be announced the following day. A majority of our panelists see 50 basis points of additional cuts by the end of 2024, while most of the rest expect a 25 basis point cut.
Panelist insight: ING’s Francesco Pesole and James Smith said:
“Governor Erik Thedeen has suggested we could see cuts at the two remaining meetings later this year. That’s a message we’d expect to be reiterated this month and we have no reason to doubt that those cuts will be delivered. If they are though, that would get the Riksbank to a more neutral level of interest rates sooner than most of its peers. That suggests that rate cuts are unlikely to continue beyond the winter.”