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Six rate cuts before next summer

The National Institute of Economic Research expects six interest rate cuts before next summer, a clearly faster pace of reduction than what the Swedish Central Bank has indicated. It is time for the Swedish Central Bank to increase the pace, says the General Director of the National Institute of Economic Research, Albin Kainelainen.

» Updated: 11 August 2024, 16:07

» Published: 07 August 2024

Six rate cuts before next summer
Photo: Oscar Olsson/TT

In its latest forecast, KI estimates that the interest rate will be lowered to 3 percent by the end of 2024. For next year, they expect an interest rate of 2.25 percent before next summer. This means three more times this year and three more times before the summer of 2025.

In the Swedish Central Bank's latest forecast, the interest rate is at 3.08 percent during the first quarter of next year and at 2.7 percent on average in 2026.

We are increasingly confident that inflation has come down to low levels. We still see weaknesses in the economy, we have a recession, says Albin Kainelainen.

The combination of recession and increased confidence in low inflation means that it is reasonable to lower the interest rate a bit faster.

Does not rule out double cuts

Albin Kainelainen does not rule out that there may be double cuts ahead, but says it does not apply in August.

Nothing is entirely ruled out, but right now there is very little that suggests it, considering that things have calmed down on the financial markets again.

But he also adds that it is more likely that the Swedish Central Bank will lower the interest rate even faster – than that there will be double cuts ahead.

And lowering the interest rate faster would also contribute to unemployment falling back faster, according to KI.

Unemployment is expected to be at 8.3 percent for 2024, a slightly lower figure than the previous forecast. Next year, they expect an unemployment rate of 8.2 percent, also a slightly lower figure compared to the June forecast.

Tightens up the budget

KI lowers its GDP forecast for this year by 0.2 percentage points to 0.7 percent. For 2025, they expect growth of 2.2 percent.

No concern about the recent market turmoil is yet seen at KI.

The financial turmoil we've seen in recent days, we believe will be short-lived, continues Albin Kainelainen.

In the forecast, KI estimates that the budget for 2025 will include unfunded measures equivalent to 50 billion kronor.

We have tightened it up a bit. We're based on what the government has communicated and what we see from the economic situation. And also what we see that the Swedish Central Bank can be expected to do.

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TTT
By TTThis article has been altered and translated by Sweden Herald

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