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Thedéen's defense: it's about having patience

As expected, the Central Bank is lowering the interest rate by 0.25 percentage points. However, Swedish households can currently only count on a single rate cut in 2025 according to the Central Bank.

» Published: December 19 2024

Thedéen's defense: it's about having patience
Photo: Anders Wiklund/TT

There are prerequisites for the economy to strengthen and some signs of recovery. To provide further support for this development, we are lowering the repo rate, says Riksbank Governor Erik Thedéen at a press conference.

Today's rate cut from the Swedish Central Bank is the fifth this year, while the interest rate path is being marginally lowered. At the same time, they are still only flagging a rate cut below 2025. The cut is expected to come slightly earlier than previously expected in the latest interest rate path.

For the cautious

Several economists are criticizing the assessment, considering the Swedish Central Bank to be acting too cautiously. However, Governor Erik Thedéen emphasizes that they have accelerated the pace of rate cuts and highlights the double cut, i.e., by 0.50 percentage points, as a clear example.

— A fairly large part of these rate cuts will not be visible in consumers' wallets until the beginning of 2025, he says, and continues:

It's about having some patience, and monetary policy will now take a more "testing approach".

Raising the inflation forecast

Yesterday, the Federal Reserve, the Swedish Central Bank's counterpart in the US, also delivered a rate cut, but the market focused on the hawkish tone that the Fed presented. The stock market also fell back on the news that only two rate cuts are now expected from the Federal Reserve. Thedéen, however, emphasizes that there is a difference between the US and Sweden:

It's very different, even if it looks similar on paper. But again, what happens in the US will never be unimportant for Sweden. If we get a more "inflationary" development in the US, it's something we need to take into account, he says.

The Swedish Central Bank is also raising its inflation forecast for both this year and 2025. This year, the KPIF inflation is expected to be 1.9 percent. The previous forecast was 1.7 percent.

For 2025, the Swedish Central Bank expects a KPIF inflation of 2.0 percent, which is the Swedish Central Bank's inflation target. In the previous report, the inflation forecast was 1.6 percent for 2025.

Mild recession

The GDP forecast is being lowered for 2024-2025. Growth this year is expected to remain at 0.6 percent, compared to the previous forecast of 0.8 percent. For 2025, the Swedish Central Bank expects growth of 1.8 percent, compared to 1.9 percent previously.

We are still in a mild recession, but we see some signs of recovery. The housing market has returned to pre-pandemic levels. We also see increased optimism among companies.

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By TTThis article has been altered and translated by Sweden Herald

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