Sweden's Riksbank said on Thursday that it may cut interest rates three more times this year. Central bank president Erik Thedéen warned that caution is needed.
“Two or three cuts are a prediction, it is not a promise, and we will adapt monetary policy to the incoming information,” Thedéen told CNBC's Arabile Gumede.
The Riksbank said on Thursday that it had kept its policy rate at 3.75% at its June meeting, after a reduction of 25 basis points in May, when it became one of the first major economies to embark on the latest path of monetary easing.
At its May meeting, the company had forecast only two cuts in the second half of the year.
“Our inflation forecast points to a favorable inflation outlook. We are still very close to our target and our forecast points to 2% inflation in the coming months and years,” Thedéen said.
“Of course there is uncertainty about that. We had some setbacks in May, so we want to have some more time before we decide to make cuts.”
Positive signs include cooling inflation expectations, weaker corporate prices and “better wage policies” than currently experienced in the euro zone or Norway, he said.
Primary risks include strong demand fueling a rebound in domestic price pressures, movements in the Swedish krona, a global supply shock or a recovery in energy prices, he continued.
To deliver more rate cuts, “we don't need a super positive surprise, we need to have data that is broadly in line. Of course, not all data will match our forecast exactly. So I think that would be the key message,” Thedéen told CNBC.
Inflation in Sweden was 3.7% in May, slightly higher than the 3.5% forecast by Reuters in a poll of economists.
Riksbank Governor Erik Thedeen holds a press conference on the monetary policy decision in Stockholm, Sweden on February 1, 2024.
Tt News Agency | Via Reuters
On Thursday announcementthe Riksbank noted that non-energy inflation was now below 3% and that overall figures since the collapse had been lower than its own projections. The latest forecast is that the total price will rise by an average of 3.1% this year, with a sharp decline to 1.3% in 2025.
The central bank also takes into account CPIF, the consumer price index with a fixed rate, which excludes the effect of changes in mortgage rates. This comes out at 2% this year and 1.8% next year.
The Swedish economy is expected to grow from a contraction of 0.2% in 2023 to a growth of 1.1% in 2024 – well above the previous forecast of 0.3% – followed by growth of 1.7% in 2025 .
“The [Riksbank’s] The new statement is milder than before,” James Smith, developed markets economist at ING, said in a note on Thursday. This marks a change from the start of the most recent rate hike cycle, when the Riksbank sought to tighten policy faster and more aggressively than before. the European Central Bank, he said.
“Sweden's more interest-rate-sensitive economy is coming under greater pressure, meaning the Riksbank can more confidently initiate further easing at a time when the ECB is turning more cautious again,” Smith said.
The ECB made a well-marked 25 basis point rate cut at its June meeting, taking its key rate to 3.75%, but policymakers have been less determined about the path ahead. According to LSEG data, money market prices suggest two more cuts of 25 basis points before the end of the year.
“Swedish officials also make a big point of the fact that inflation expectations are much lower, which should lead to more modest wage deals at the next round of talks in early 2025,” Smith added.
