Sweden’s Riksbank said on Thursday it could cut interest rates three more times this year, with central bank Governor Erik Seddon warning that caution must be exercised.
“The two or three interest rate cuts are just predictions, not promises. We will adjust monetary policy based on the information we receive,” Thedéen told CNBC’s Arabile Gumede.
The Riksbank announced on Thursday that it would maintain its policy interest rate at 3.75% at its June meeting. Cut interest rates by 25 basis points In May, it became one of the first major economies to adopt the latest monetary easing policy.
At its May meeting, the company had forecast only two reductions in the second half.
Thedéen said: “Our inflation forecast points to a good outlook for inflation and we remain very close to our target now, with our forecast pointing to 2% inflation in the coming months and years.”
“Of course there’s uncertainty and we had some backlash in May, so we’d like to have more time before we decide to make cuts.”
He said positive signs include cooling inflation expectations, softer corporate pricing and “better wage settings” than currently in the euro zone or Norway.
Key risks include rising domestic price pressures due to strong demand, volatility in the Swedish krona, global supply shocks or a rebound in energy prices, he continued.
To achieve more rate cuts, “we don’t need to have super positive surprises, we need data that is generally in line with expectations. Of course, not all the data is going to be exactly in line with our forecasts. So I think that’s going to be the main message,” Thedéen told CNBC .
Sweden’s overall inflation rate was 3.7% in May, slightly higher than the 3.5% forecast in a Reuters poll of economists.
Erik Thedeen, Governor of the Riksbank, held a press conference on the monetary policy decision in Stockholm, Sweden on February 1, 2024.
Tt News Agency | Reuters
on Thursday announcementThe Riksbank noted that inflation excluding energy is currently below 3%, with readings since the autumn generally below its own forecasts. Its latest forecast is for overall price growth to average 3.1% this year, before falling sharply to 1.3% by 2025.
The central bank also takes into account the CPIF, or fixed-rate Consumer Price Index, which excludes the impact of changes in mortgage rates. The growth rate is expected to be 2% this year and 1.8% next year.
Meanwhile, Sweden’s economy is expected to expand from a contraction of 0.2% in 2023 to growth of 1.1% in 2024, much higher than the previous forecast of 0.3%, followed by growth of 1.7% in 2025.
“(The Riksbank’s) new statement is more dovish than before,” ING developed markets economist James Smith said in a note on Thursday. He said this was consistent with the start of the latest rate hike cycle. The difference was that the Riksbank was keen to tighten policy faster and more aggressively than the European Central Bank.
Smith added: “Sweden’s more interest-rate-sensitive economy is facing more pronounced pressures, meaning the Riksbank can more confidently commit to further easing at a time when the ECB is once again becoming more cautious.”
The European Central Bank clearly announced a 25 basis point interest rate cut at its June meeting, lowering the key interest rate to 3.75%, but policymakers’ commitment to the future path was less firm. London Stock Exchange data showed money market pricing pointed to two more 25 basis point interest rate cuts before the end of the year.
Smith added: “Swedish officials are also touting the fact that inflation expectations are significantly lower, which should lead to a softer wage solution in the next round of negotiations in early 2025.”
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