Central Bank Paves the Way for Double Cut from Riksbanken

The Fed's double cut in the interest rate may affect the Swedish Central Bank's message next week. At least on the margin, believes SEB's chief economist Jens Magnusson. It is absolutely impossible to rule out that it will be 50 points, he says.

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Central Bank Paves the Way for Double Cut from Riksbanken
Photo: Richard Drew/AP/TT

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The US central bank, the Federal Reserve, made a cut of 0.5 percentage points on Wednesday evening, Swedish time. This surprised several analysts, and it was the first interest rate cut in the US since March 2020.

Jens Magnusson does not believe that one should exaggerate how much central banks look at each other before making their decisions.

But it is clear that on the margin, if the Swedish Central Bank still wants to cut a bit more, then it is clear that the room for maneuver increases a bit when other central banks, especially the ECB and the Fed, take the lead, he says.

Double Cut This Year

Nordea estimates that after the Fed's decision, the Swedish Central Bank will cut by 25 points at the next four meetings. But the probability of a larger cut in November has increased.

"Other central banks' actions are central. The Fed's 50-point cut this week paves the way for larger steps also for other central banks, including the Swedish Central Bank," writes chief analyst Torbjörn Isaksson in a macro analysis.

SEB believes that the Swedish Central Bank will cut the interest rate by a total of 100 points at the remaining three meetings this year. The bet is still that the double cut will occur in November.

I think that the Swedish Central Bank's communication still suggests that they want to continue this gradual and cautious approach for a while longer. On the margin, it still leans towards 25 points at the next meeting, but it is absolutely impossible to rule out that it will be 50, says Jens Magnusson.

Which Interpretation Wins?

The Fed's decision is still being processed by the market, according to Magnusson. The positive interpretation is that inflation has been fought so much that there is room to drive the economy. The negative interpretation is that the 50-point cut is a sign that the US economy is doing worse than expected and needs to be boosted.

The fact that the decision was initially seen as solely positive by the market, only to become more divided, can be the explanation for why both Wall Street and the krona initially strengthened, only to fall back during the day.

Now it will be interesting to see which of the interpretations around the stock market and currencies wins, says Magnusson.

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By TTEnglish edition by Sweden Herald, adapted for local and international readers

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