Sweden's Central Bank Cuts Key Rate and Sees Two More Cuts This Year — Update

By Dominic Chopping

STOCKHOLM--Sweden's central bank cut its key interest rate for the third time this year and said borrowing costs will likely be lowered again soon as a faltering economy threatens to push inflation further below its target.

The Riksbank cut its key rate to 3.25% from 3.5%, in line with a poll of economists conducted by The Wall Street Journal ahead of the decision.

"If the outlook for inflation and economic activity remains unchanged, the policy rate may also be cut at the two remaining monetary policy meetings this year," the Riksbank said.

A 50 basis points cut is possible at one of the remaining meetings this year and the central bank now expects one or two further rate cuts during the first half of 2025.

Together, these forecasts imply a relatively large shift of monetary policy in a more expansionary direction, which will improve household finances and make it easier for companies to invest, it said.

The comments represent a sharp contrast in signaling from the Riksbank, which as recently as August had seen no need for larger 50 basis point cuts. Should it move ahead with a such a move it would match the size of rate cut announced by the Federal Reserve last week, putting the two central banks at odds with most other rich-country central banks that have moved in smaller steps.

Policymakers at the European Central Bank and the Bank of England have signaled they will continue to take a cautious approach to easing the restraints they have placed on households and businesses, despite signs that the economy is slowing and inflation is cooling.

The eurozone's central bank lowered its key interest rate for a second time earlier this month, having first moved in June, while the Bank of England last week opted to stand pat following its first cut in August.

In Sweden, the pace of inflation has slowed sharply in recent months with the Riksbank's target measure dropping below the 2% target in each of the last three months, having peaked at over 10% at the end of 2022. At the same time, the domestic economy is stagnant while household consumption remains weak and the labor market continues to deteriorate.

In its statement Wednesday, the Riksbank said inflationary pressures have now dissipated and the risk of inflation becoming too high again has declined. At the same time, it said the economic recovery in Sweden--key for inflation to stabilize close to the target--is developing at a slower pace than expected.

Write to Dominic Chopping at dominic.chopping@wsj.com

(END) Dow Jones Newswires

September 25, 2024 04:35 ET (08:35 GMT)

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