Riksbank stands pat on rates, signals up to three more cuts this year

Sweden’s central bank held its key interest rate at 3.75% on Thursday, as widely expected, and said that monetary policy should be adjusted "gradually".

The Riksbank said that if inflation prospects remain the same, the policy rate can be cut two or three times in the second half of the year.

It said in a statement: "Given that inflation is fundamentally developing favourably, economic activity is assessed to be somewhat weaker, and the krona exchange rate is a little stronger, the forecast for the policy rate has been adjusted down somewhat. If inflation prospects remain the same, the policy rate can be cut two or three times during the second half of the year. But the prospects for inflation and economic activity are uncertain.

"There are risks linked, for instance, to inflation abroad, geopolitical unease, the krona exchange rate and the recovery in the Swedish economy that can lead to the policy rate being either higher or lower than forecast."

In May, the Bank surprised markets by cutting interest rates for the first time in eight years, by 25 basis points.

Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics, said: "We forecast the Bank to reduce the policy rate from 3.75% currently to 3.00% by the end of the year.

"The Bank’s decision to leave its policy rate unchanged at 3.75% today was correctly anticipated by all of the economists polled by Reuters, including ourselves. Its communications at the last meeting made clear that today’s decision was likely to be a hold, and that at the time policymakers expected to cut interest rates twice in the second half of the year."

James Smith, developed markets economist at ING, said Sweden’s more interest rate-sensitive economy is coming under more noticeable pressure, which means the Riksbank "can more confidently commit to further easing at a time when the ECB is becoming more cautious again".

"Swedish officials are also making a big thing of the fact that inflation expectations are much lower, which should feed into more modest wage settlements at the next round of talks in early 2025," he added.