Swedish Riksbank makes half point cut and sees more, but uncertainty high

6:56 am Thursday, November 07th, 2024

STOCKHOLM (Reuters) – Sweden’s central bank cut its key interest rate to 2.75% from 3.25% on Thursday, as expected, and said that it would carry on easing policy in the months ahead though uncertainty about developments was exceptionally high.

The pace of inflation – which peaked at over 10% in late 2022 – has dipped well below the central bank’s 2% target, while the Swedish economy has stalled and is showing little sign of recovery in the short term.

“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,” the Riksbank said.

Donald Trump’s victory in the U.S. presidential election, however, has raised uncertainty with questions around how his policies will affect international trade, inflation and growth, the fight against climate change and support for Ukraine in its war with Russia.

The Riksbank also pointed to problems in the German economy, fiscal policy challenges across Europe and conflict in the Middle East.

“If the situation changes it could mean higher or lower rates and I say that with extra emphasis, because the level of uncertainty …is greater than at recent meetings,” Governor Erik Thedeen said.

Sweden’s central bank has now cut the policy rate four times this year, starting in May and analysts expect the Riksbank to keep cutting through the first half of next year.

“The Riksbank is confident about the inflation outlook while the economy is weaker than expected, warranting swift easing of monetary policy,” Nordea economist Torbjorn Isaksson said.

“We keep our forecast of three more 25 basis point rate cuts (in December, January and May) and a policy rate at 2.00% in Q2 2025.”

The Swedish crown was slightly stronger against the euro after the announcement.

The Bank of England will announce its rate decision at 1200 GMT and the U.S. Federal Reserve at 1900 GMT. The BOE and the Fed are each expected to deliver quarter point cuts. Norway’s central bank kept rates on hold.

Analysts in a Reuters poll had expected a half percentage point cut on Thursday.

(Reporting by Simon Johnson; Editing by Niklas Pollard, Gareth Jones and Sharon Singleton)