Om the interest rate market's actors are right, the Swedish Central Bank will probably lower the key interest rate to 1.75 percent by the end of the year, down from the current 2.25 percent. The main scenario is that the reduction will be made in two stages, with the start now on Wednesday.
However, among the chief economists at the Swedish major banks, there is some uncertainty before the second reduction – although everyone agrees that the Swedish Central Bank will lower the interest rate now on Wednesday.
Can give 15,000 kronor per year
A lower key interest rate affects interest rates on loans with short binding periods throughout the economy. This applies in particular to mortgages with so-called variable interest rates, i.e. with a three-month binding period.
If variable mortgage rates – which are currently around 3 percent – were to follow down by 0.50 percentage points, it would reduce the cost of a mortgage of three million kronor by 15,000 kronor per year – 1,250 kronor per month – if you disregard the effects of tax deductions.
The expectations of interest rate reductions have increased since inflation in Sweden has normalized and is expected to be relatively stable in the future, according to Peder Beck-Friis, economist at the American capital manager Pimco – one of the larger actors on the global interest rate market.
In addition, uncertain growth prospects due to the Trump administration's threats of high US tariffs and expectations of a weak recovery in the eurozone, according to Beck-Friis.
"Although monetary policy has been eased and will provide some support, we still see a relatively weak growth rate in Sweden during the coming year. Therefore, we believe that the Swedish Central Bank will probably lower its key interest rate to 2 percent," he writes in an email to TT about what he expects the Swedish Central Bank to do on Wednesday.
"But with a continued weak growth, the risk picture points to further reductions," he adds.
The room is decided by the ECB
The room for Riksbank Governor Erik Thedéen and his board to continue lowering the interest rate is also decided by how the European Central Bank (ECB) handles its key interest rates.
Interest rates on loans with long binding periods are likely to continue rising for a while, according to Beck-Friis. Investors are expected to demand more payment for long-term loans, especially in the US.
"Although Swedish government finances are in much better shape than in the US, a steeper American interest rate curve will likely have spillover effects on Swedish interest rates," Beck-Friis writes.
Joakim Goksör/TT
Facts: Interest rate reductions expected
TT
The Swedish Central Bank has lowered the key interest rate from 4.00 to 2.25 percent since May last year. On Wednesday, experts expect another reduction, down to 2.00 percent, i.e. a halving of the interest rate in a little over a year.
Among bank economists, opinions are divided on whether there will be further interest rate reductions, but in the pricing of the interest rate market, the probability clearly points to a reduction later this year, down to 1.75 percent. The key interest rate – which in practice is the interest rate that banks receive when they place or borrow from the Swedish Central Bank with short maturities – affects other interest rates in the economy and thus demand (growth) and inflation.
The cost of mortgages with variable interest rates is normally affected quickly when the key interest rate is adjusted, up and down. As for interest rates on mortgages with fixed interest rates (longer maturities), they are determined rather by what banks pay for their financing on a longer-term basis on the interest rate market.
