Sweden central bank cuts rate by 0.25%

Sweden’s central bank on Tuesday lowered its policy rate for the second time this year and said more cuts could be forthcoming in the coming months if inflation remains under control.

The Riksbank made its first rate cut in eight years in May but left it unchanged a month later.

The central bank said Tuesday it was reducing the rate by 0.25 percentage points to 3.5 per cent as “inflation has developed as expected and economic activity is weak.”

Various indicators reinforced “the picture of inflation stabilising” close to the Riskbank’s two-percent target, it added.

The Riksbank added it was now open to cutting rates quicker than it anticipated at its last rate decision in June.

“If the inflation outlook remains the same, the policy rate can be cut two or three more times this year,” the central bank said.

It cautioned, however, that the outlook for inflation and economic activity was “uncertain”.

“There are risks linked, for instance, to the geopolitical situation, economic activity in Sweden and abroad, and the krona exchange rate that can lead to a different outcome for inflation and thereby a different monetary policy,” the central bank said.

Swedish inflation fell to its lowest level in almost three years in June, reaching 2.6 per cent, and remained at the same level in July.

The inflation measure used by the Riksbank to guide monetary policy, CPIF — which is adjusted for interest rates — was 1.7 per cent year-on-year in July, below the central bank’s two-percent target.

After a series of rate hikes aimed at reining in inflation, Sweden’s interest rate had been held at four per cent since September 2023, its highest level since 2008.

AFP