The Sveriges Riksbank reduced its policy rate by 25 basis points to 3.25% on Wednesday, its third cut of 2024. The Executive Board said the decision reflects continued progress in bringing inflation back towards the 2% target, and signalled that further reductions remain in prospect if the economic outlook evolves as expected. The move brings the cumulative reduction in the policy rate since the start of the cutting cycle to 75 basis points.
Sweden's central bank started its cutting cycle ahead of both the European Central Bank and the Bank of England. The latest move to 3.25% extends a sequence of reductions that began in May, when the Riksbank lowered borrowing costs from 4.00%, and was followed by a second cut in August.
INFLATION AND THE ECONOMY
Swedish consumer price inflation, measured by the CPIF index that the Riksbank targets, has fallen from levels that exceeded 10% in late 2022. The Board noted that underlying inflation, which strips out energy prices, has also trended lower in recent months.
The Riksbank's updated forecast, published alongside Wednesday's decision, projected that the policy rate will decline further over the coming quarters. The board noted that the Swedish economy has weakened considerably under the weight of higher borrowing costs, with household consumption and the housing market both under pressure.
The krona remains a factor for the board, which had flagged a weak krona as an inflation risk earlier in the cycle, since a significant depreciation could complicate the inflation outlook by raising import costs.
FURTHER CUTS PROJECTED IN COMING QUARTERS
The Riksbank said that, if the outlook for inflation and economic activity remained unchanged, the policy rate could also be cut at both remaining meetings this year, with a 50-basis-point cut possible at one of them, followed by one or two further cuts in the first half of 2025. Two further scheduled meetings remain this year, in November and December.
The Bank of England had held its rate at 5.00% on 19 September.