FX.co ★ Sweden Central Bank Likely To Start Cutting Rates In May

Sweden's central bank, Riksbank, has suggested it may reduce the interest rate in May or June of this year given the country's continual economic recession, assuming a favorable inflation outlook. On Wednesday, Riksbank's Executive Board agreed to maintain the existing policy rate at 4.00 percent.

Despite a decrease in the risk of an exceedingly high inflation rate, the Bank acknowledged that inflationary pressures still remain somewhat high. The Board desires further assurance that inflation will stabilize near their target before taking action.

The need to shrink the monetary policy decreases when inflation targets are met and the economy is underperforming. According to the Bank, if inflation remains favorable, it is likely that a policy rate cut might be implemented in May or June.

The Board cautioned, however, that a rise in inflationary pressures could introduce new risks. They advised that the policy should be carefully adjusted going forward, with the consideration of implementing gradual rate cuts.

The Bank stressed that new information regarding the effects on the economy and inflation would be critical in shaping monetary policy decisions. Economists at ING anticipate a rate cut in May, provided that inflation data remains favorable and the currency does not significantly depreciate.

Andrew Kenningham, an economist at Capital Economics, anticipates a greater rate cut this year than the 70 basis-point currently predicted by financial markets. He expects a primary 25 basis-point rate cut in May or possibly June, following the European Central Bank and Fed meetings, with three additional cuts by the end of the year.

Riksbank has revised its inflation prediction for 2024, lowering it from 4.4 to 3.5 percent, and its forecast for next year from 2.4 to 1.5 percent. Inflation in 2026 is projected at 1.6 percent, down from the previous forecast of 1.9 percent.

In terms of economic growth, it's predicted that the economy will contract by 0.3 percent in 2024, but expand by 1.9 percent in 2025 and 2.4 percent in 2026.