In November – when the inflation prospects have improved – it's time for a reduction of the interest rate by 0.25 percentage points to 1.75 percent, believe Danske Bank's economists.
"The slow recovery also raises the question of whether the current interest rate level is more restrictive than what the Swedish Central Bank previously assessed”, writes chief economist Susanne Spector in a press release.
Warns of effects of interest rate cut
This is in line with the pricing on the interest market, where the probability points to a reduction before the turn of the year – something that the Swedish Central Bank's governor Erik Thedéen has also pointed out as a possibility.
Major bank Swedbank's economists count on two reductions of the interest rate already this year, according to an economic forecast from August. SEB's economists believe, like Danske Bank, that the Swedish Central Bank will be satisfied with a reduction.
Nordea's chief economist Annika Winsth warns, however, of the effects of an interest rate cut to – after the interest rate has been halved since May 2024.
She sees today's interest rate of 2 percent as "pretty normal" considering the economic situation – and as stimulating considering that inflation is nonetheless hovering around 3 percent.
The bottom has already been passed in the economy, she says.
An interest rate cut at that point would only risk weakening the krona, which can contribute to inflation becoming unnecessarily high and dampening households' purchasing power, warns Winsth.
Instead, she counts on the Swedish Central Bank's next step being interest rate hikes, up to 2.50 percent by the end of 2027.
Winsth sees the government's proposal for increased housing allowance for vulnerable families in the autumn budget as welcome, but she sees risks with the halving of food VAT from 12 to 6 percent that the government and the Sweden Democrats are reported to have agreed on.
Major effect on inflation
The temporary halving of food VAT being discussed – from April 2026 to December 2027 – can easily become permanent, warns Winsth.
And the major effect will be on inflation. We're talking about eight tenths (0.8 percentage points) lower inflation, she says.
This the Swedish Central Bank should not take into account, but instead dust off old inflation measures excluding taxes, according to Nordea's chief economist.
If the Swedish Central Bank does not see through this, they would first need to cut and then raise the interest rate just as much when the food VAT is increased again. Those swings and roundabouts you don't want to get into, she says.
Aside from more support to vulnerable households, Winsth wants the government to also invest more in support to municipalities and regions – including investments in new water and sewage facilities.
The fixed rot deduction, which many believe will be extended in the budget, she does not think much of.
The construction and housing market doesn't need to be interfered with that much.
Nordea counts on growth this year increasing slightly to 1.0 percent, to continue up to 2.7 percent in 2026.
Danske Bank counts on growth this year increasing to 1.1 percent and sees growth of 2.0 percent ahead in 2026.
Inflation is expected to peak at 2.7 percent this year and decline to 2.1 percent in 2026, according to Danske Bank. There, Nordea's economists believe in 2.6 percent this year and 1.7 percent in 2026.
Regarding unemployment, both banks count on the peak being 8.7 percent this year and a slight decline to 8.4 percent in 2026.
Danske Bank's economists count on a reduction of the interest rate to 1.75 percent this year and that it will remain there even in 2026. Nordea counts on the interest rate remaining at 2.00 percent this year and next year, to begin rising to 2.50 percent by the end of 2027.
Sources: Danske Bank, Nordea
