Swedish central bank to cut key rate this week, Reuters poll shows

Swedish central bank to cut key rate this week, Reuters poll shows

By Simon Johnson

STOCKHOLM (Reuters) – Sweden’s central bank will cut its key interest rate this week by a quarter percentage point to 3.75% and then continue to ease policy gradually through the year, a Reuters poll showed on Monday.

A large majority of the 22 analysts saw the Riksbank cutting rates for the first time since 2016 after gaining confidence that inflation has been tamed from a peak of more than 10% at the end of 2022.

Only six analysts expected the central bank to hold rates at 4.00%.

“We see a high probability that the Riksbank will cut the policy rate by 25 basis points,” banking group SEB said. “The weak krona is a headache and we predict the board will push back against expectations for another rate cut already in June.”

The Riksbank will cut the policy rate to 3.00% by the end of the year, the median forecast showed.

After ratcheting up rates at a record pace over the last two years, the pace of inflation in Sweden has dropped close to the central bank’s 2% target. But the economy has also slowed sharply, unemployment is rising and mortgage holders are feeling the pinch.

The Riksbank signalled at its most recent meeting in March it would likely start to cut rates in May or June and all the analysts in the poll expected a cut either this week or next month.

However, rate-setters are cautious about moving too fast.

Getting ahead of other central banks could further weaken crown which would add to inflation pressure at a time when geopolitical worries are weighing heavily and rate cut expectations globally are being pushed back.

The European Central Bank is expected to cut rates in June, but easier policy in the United States may take some time to materialise.

“The krona weakness, interest rate expectations abroad, higher oil prices and elevated services inflation speak in favour of caution and gradualism,” Morgan Stanley said in a note.

Sweden’s neighbour Norway, a rock-solid economy, has also seen its currency hit by global uncertainty and its central bank does not see a cut until September.

The Riksbank will not give any fresh forecasts until its June meeting. It will announce its policy decision at 0730 GMT on Wednesday, May 8.

(Reporting by Simon Johnson; Editing by Kirsten Donovan)