Sweden’s central bank holds rates, eyes cuts

Sweden’s central bank, the Riksbank, maintained its key rate at 4 per cent on Wednesday, indicating that easing inflationary pressures could lead to the first of several policy rate cuts in the coming months, Reuters reported.

The headline inflation is now nearing the bank’s 2 per cent target, down from over 10 per cent, and is projected to continue falling.

The bank expressed concerns about potential setbacks, including the possibility that a relaxed policy could devalue the Swedish crown.

Therefore, it plans to cautiously adjust monetary policy through gradual rate cuts. The Riksbank forecasts the policy rate to be 3.44 per cent in the fourth quarter.

Andrew Kenningham, Chief Europe Economist at Capital Economics, predicts a 25 basis point rate cut in May or June, followed by three more cuts before the end of the year.

Following the announcement, the Swedish crown slightly weakened against the euro.

The Riksbank had previously stated in February that rates had peaked and policy easing might be possible in the first half of the year.

The last rate cut was in early 2016, when it dropped to -0.50 per cent, the lowest ever level. This negative or zero rate period lasted until 2022, when the Ukraine crisis led to a price surge and a record increase in borrowing costs.

The Riksbank is set to announce its next monetary policy decision on May 8.