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Banking

Swedish central bank cuts policy rate, cautious on easing in 2025

Published by Uma Rajagopal

Posted on December 19, 2024

Featured image for article about Banking

By Simon Johnson

STOCKHOLM (Reuters) – Sweden’s central bank cut its key interest rate by a quarter percentage point to 2.50% as expected on Thursday, but said that after easing policy five times this year, it now saw reasons to be more cautious as it enters 2025.

Sweden’s economy has been treading water for the last two years after the Riksbank jacked up rates to fight surging inflation – which peaked at around 10% in late 2022.

The central bank started cutting rates again in May and inflation is now below the 2% target. But while households and businesses remain wary about spending, inflation has edged up again in recent months.

“If the outlook for inflation and economic activity remains unchanged, the policy rate may be cut once again during the first half of 2025,” the Riksbank said in a statement.

In November, when the central bank made a larger-than-usual half-percentage-point cut, rate-setters had said they expected to cut in December and that they could ease policy once or twice in the first half of 2025.

“The interest rate has been reduced rapidly and monetary policy affects the economy with a lag,” the Riksbank said on Thursday. “This argues for a more tentative approach when monetary policy is formulated going forward.”

The Swedish crown strengthened after the announcement.

“We now expect just one more 25 basis point cut next year, in March, as we think the economy will start to pick up soon, dissuading policymakers from too much more policy loosening,” Adrian Prettejohn, Europe Economist at Capital Economic said.

The Riksbank’s more cautious message echoes that of the U.S. Federal Reserve which cut rates as expected on Wednesday, but now sees only two cuts next year, fewer than at the previous meeting.

Norway’s central bank kept its key rate on hold on Thursday.

The Bank of England will announce its policy decision later in the day.

Analysts in a Reuters poll had been unanimous in seeing a quarter-point cut. They forecast two more cuts in the first half of next year with the policy rate stabilizing at 2.00%.

(Reporting by Anna Ringstrom, Johan Ahlander, Simon Johnson and Niklas Pollard in Stockholm and Terje Solsvik in Oslo; editing by Niklas Pollard)