Sweden's Central Bank Lowers Interest Rate

STOCKHOLM (Reuters) – Sweden's central bank has cut its key interest rate to 2.75% from 3.25% on Thursday, as anticipated. The bank indicated it will continue to ease policy in the upcoming months despite exceptionally high uncertainty regarding future developments.

The inflation rate, which peaked over 10% in late 2022, has now fallen significantly below the bank's target of 2%. Meanwhile, Sweden's economy appears stagnant, showing limited signs of recovery in the short term.

The Riksbank commented, "If the outlook for inflation and economic activity remains unchanged, the policy rate may be cut again at the next monetary policy meeting in December and during the first half of 2025."

Uncertainty was further compounded by Donald Trump's victory in the U.S. presidential election, raising questions about potential impacts on international trade, inflation, growth, climate change efforts, and support for Ukraine amid its ongoing conflict with Russia.

Additionally, the Riksbank pointed to issues in the German economy, fiscal policy troubles across Europe, and escalating conflicts in the Middle East.

Governor Erik Thedeen emphasized the high level of uncertainty: "If the situation changes, it could mean higher or lower rates… the level of uncertainty is greater than at recent meetings."

This marks the fourth interest rate cut by Sweden's central bank this year, starting in May. Analysts expect further reductions into the first half of next year.

Nordea economist Torbjorn Isaksson stated, "The Riksbank is confident about the inflation outlook while the economy is weaker than expected, warranting rapid easing of monetary policy." He forecasted three additional 25 basis point cuts (in December, January, and May), predicting a policy rate of 2.00% by Q2 2025.

Following the announcement, the Swedish crown showed slight strength against the euro.

The Bank of England’s decision will follow at 1200 GMT, with the U.S. Federal Reserve announcing its decision at 1900 GMT. Both the BOE and the Fed are anticipated to implement quarter-point cuts. Notably, Norway's central bank chose to keep rates unchanged.

Analysts had projected a half percentage point reduction for Thursday.