The Swedish Central Bank assesses that it is "somewhat" more likely that inflation will be lower than that it will be higher than in the March prognosis. This allows for a lower interest rate further ahead.
It would speak in favor of a somewhat easier monetary policy ahead, says the Swedish Central Bank Governor Erik Thedéen at a press conference.
Vaguely formulated
He emphasizes that the bank currently does not specify what an interest rate cut, in such cases, would imply in terms of scope or when in time it could become relevant. The uncertainty is too great.
It is deliberately quite vaguely formulated.
But he says at the same time that the monetary policy is "well-balanced".
Uncertainty is a recurring theme in the Swedish Central Bank's view of the future. The US trade war and its impact on the business cycle and thus inflation is difficult to assess.
It has settled like a wet blanket over the global economy, including the Swedish, says Thedéen.
Furthermore, he says that the Swedish Central Bank is quite certain that the business cycle will weaken, but the central bank is less certain about the inflation dynamics.
For business cycle reasons, it should become somewhat weaker inflation, but on the other hand, there are other factors such as tariffs and how they could strike. So, there we are humble that just the inflation trend is more ambiguous.
Counting on a cut
The krona and Swedish market interest rates did not significantly after the signal from the Swedish Central Bank about a possible interest rate cut ahead.
In the interest rate market, the belief in cuts from the Swedish Central Bank increases after the interest rate decision. The likelihood of a cut in the benchmark interest rate to 2 percent in June is now at 60 percent in pricing, while a cut in August is fully priced in.
The likelihood of a second cut – down to 1.75 percent – before the year-end increases simultaneously to 84 percent.
The interest rate decision comes after an inflation report from Statistics Sweden (SCB) last week, which showed that the KPIF-inflation in April was at 2.3 percent. Adjusted for energy prices, it was measured at 3.1 percent during the month.
The Swedish Central Bank's inflation target is at 2.0 percent in KPIF-inflation.
