Swedish central bank seen on hold next week, but rate cut not ruled out, Reuters poll shows

STOCKHOLM (Reuters) - Sweden's central bank is expected to keep its policy rate on hold next week, but polled analysts were almost evenly divided between those expecting no change from 2.00% and those seeing a cut to 1.75%.

Twelve of 22 analysts in a Reuters poll saw rates remaining unchanged. However, 14 of 22 saw the benchmark interest rate falling to 1.75% by the end of the year, with one further analyst expecting the policy rate to drop to 1.50%.

"We expect the Riksbank to leave its policy rate unchanged at 2.00% at its 23 September meeting, as inflation remains high and above its forecast from June," Nomura said in a note, adding that the economic outlook was brightening.

"However, a policy rate cut to 1.75% remains a risk."

Like many central banks, the Riksbank has slashed rates over the last couple of years as inflation eased from a peak of more than 10%. But policymakers now face a tricky balancing act.

The economy has been sluggish, but growth prospects are improving - not least because the government has promised an 80 billion-crown ($8.6 billion) budget boost next year.

Some of the uncertainty about the effects of U.S. President Donald Trump's tariff policies has also dissipated.

Inflation remains well above the central bank's 2.00% target. However, the labour market is weak, recovery has been delayed, and the Riksbank is confident price pressures are temporary and will fall back over the coming months.

"We expect the Riksbank to cut the policy rate to 1.75% ... and signal a small possibility of another rate cut in the coming three quarters," SEB said in a note. 

"We think that continued slow growth and a weak labour market will be more important than the slightly higher inflation during the summer."

When it kept its policy rate at 2.00% in August, the Riksbank said there was a 50-50 chance of a rate cut before the end of the year, and the overall picture has not changed much since then. 

The bank will announce its next policy decision on September 23. ($1 = 9.3568 Swedish crowns)

(Reporting by Simon Johnson; Editing by Hugh Lawson and Kevin Liffey)