The Verdict: Too Cautious by the Central Bank

Completely too cautious and a decision that can have major consequences for the Swedish economy. Economists are critical of the Swedish Central Bank's interest rate forecast for 2025. It will not provide the boost that the economy needs, says Swedbank's chief economist Mattias Persson to TT.

» Published: December 19 2024

The Verdict: Too Cautious by the Central Bank
Photo: Anders Wiklund/TT

The interest rate decision was as expected, a reduction of 25 points to a repo rate of 2.50 percent. What's more surprising is how the Swedish Central Bank views future rate cuts ahead of 2025.

They are too cautious and I'm a bit surprised that they're doing so little. This was a "hawkish" cut, we haven't seen any green shoots and cowbells in the Swedish economy yet, says Mattias Persson.

The Swedish Central Bank announces in connection with the interest rate decision that the repo rate "may be cut once more during the first half of the year" and it's precisely this wording that Mattias Persson and several economists are now reacting to.

Should have been more offensive

From a market perspective, the assessment has been significantly more offensive regarding cuts, and for example, Swedbank has estimated that there will be two more cuts to a repo rate that will be at 1.75 percent by mid-year.

The Swedish Central Bank emphasizes that they've moved quickly, which can be questioned. I'm afraid that this won't give the economy the boost it needs.

What will be the consequence?

The recovery will be pushed further into the future, which would mean lower growth, a worse labor market, and higher unemployment.

A challenge

Torbjörn Hållö, chief economist at LO, also sees the same challenge for the Swedish economy:

They've attributed a high value to doing it step by step, he says about the rate cuts.

I don't buy that argument. I think that the longer Sweden has the wrong interest rate, the higher unemployment will be and the worse growth will be.

Statistics over the past six months have also shown that Swedish consumption hasn't really taken off yet, households are still holding tight to their wallets, which is now something the Swedish Central Bank must take into account, notes Hållö:

I think they'll need to do more to get households to consume. That's what will determine the development of the Swedish economy next year.

More cuts await

Torbjörn Isaksson, chief strategist at Nordea, also believes the decision was hawkish. He draws parallels to the interest rate forecast delivered by the US Federal Reserve last night.

Both Nordea and Swedbank estimate, however, that the Swedish Central Bank will have to implement more cuts than they're now opening up for.

The labor market is weaker, which isn't good in this situation when we haven't seen a recovery, says Mattias Persson.

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

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