The sixth rate cut since May 2024 is a fact. Now, it may be over. The Swedish Central Bank is not releasing a new forecast in conjunction with today's interest rate decision, but reiterates that the assessment from December still stands, with no further rate cuts in sight at present.
This goes against the forecasts of other assessors. The National Institute of Economic Research (KI) goes the furthest and estimates that the repo rate should drop to 1.5 percent by the summer, compared to today's 2.25.
The economy needs several rate cuts to gain momentum. A higher interest rate leads to lower growth, lower inflation, and higher unemployment, says General Director Albin Kainelainen to TT and continues:
Our picture is that more is needed for Swedish households to boost their consumption.
New inflation figure
In recent months, inflation has also been below the Swedish Central Bank's inflation target of 2.0 percent, and the cautious consumption of households has been highlighted as a challenge to getting the economy going again.
A main argument often raised is that rate cuts take time to have an effect.
The Swedish Central Bank points out that they believe the cuts they have made so far are sufficient and that they will now have a slightly greater effect already at the beginning of this year. We are not as optimistic, says Kainelainen.
Even from the trade union side, they want to see more cuts. The Union writes in a comment that they want to see "clearer signals of more cuts". The Confederation of Swedish Enterprise and LO share the view:
I think they will absolutely need to cut the interest rate more, but it's obvious that they want to wait until the March meeting to announce it, says LO's chief economist Torbjörn Hållö.
Going forward, it will be about finding a balance between financial and monetary policy, says Hållö.
The more the government and parliament do, the less the Swedish Central Bank will need to do in the future. If the government announces that they will come up with significant stimulus packages in the spring budget, I think the pressure on the Swedish Central Bank to do more will decrease somewhat.
One cut to
Swedbank's assessment is simultaneously that there will be one more rate cut this year, i.e., to a repo rate of 2.0 percent.
It may be a fragile recovery we're seeing, and therefore, I think one more cut may be needed in March. But the data will show, says chief economist Mattias Persson.
