Sweden’s Central Bank Expected to Cut Rates

STOCKHOLM (Reuters) – Sweden’s central bank is anticipated to cut its policy rate by a quarter percentage point to 3.50% on Aug. 20 and then twice more before year-end as inflation pressures ease, according to a poll of analysts by Reuters.

All 16 analysts in the poll expect a quarter-point cut on Tuesday, with the policy rate forecasted to conclude the year at 3.00% before dropping further in early 2025.

“Swedish inflation and activity data have been weaker than policymakers expected,” said Adrian Prettejohn, Europe Economist at Capital Economics. “We think this will encourage them to cut the key policy rate from 3.75% to 3.50% and indicate at least a further 50 basis points of cuts over the remainder of the year.”

After reducing the policy rate for the first time in eight years in May, the central bank kept it unchanged at 3.75% in June, stating that it could make up to three more cuts this year amid lower price pressures.

Headline inflation has continued to decrease from its peak of over 10% in 2022 and has been below the central bank’s target of 2% for two consecutive months. The economy has slowed, with manufacturers, households, and the construction sector weakening in the second quarter.

With markets anticipating the U.S. Federal Reserve to begin cutting interest rates in September, concerns that rapid local rate cuts could weaken the currency and increase inflation have lessened, though a minority of analysts see potential for more significant Swedish cuts.

“We predict that the policy rate will be cut at all upcoming monetary policy meetings, leading to a rate of 2.75% by year-end,” said Nordea economist Torbjorn Isaksson, who expects an additional rate cut early next year.

However, with persistent inflation in the euro zone and the European Central Bank only projected to cut rates twice more this year, Swedish rate setters may choose to exercise caution.

The central bank of neighboring Norway held its key rate on Aug. 15, stating that a tight monetary stance may be essential for some time to combat inflation.

The Swedish central bank has three more rate-setting meetings this year after Tuesday, in September, November, and December. The Riksbank is set to reveal its policy decision at 0730 GMT.