Swedish central bank holds rates, flags cut in May or June By Reuters

By Simon Johnson

STOCKHOLM (Reuters) – Sweden’s central bank kept its benchmark interest rate at 4.00% on Wednesday, as expected, and said inflationary pressures had eased enough to make the first of several rate cuts in the coming months.

Headline inflation is now close to the central bank’s 2% target, after peaking at 10%, and is expected to decline.

Meanwhile, growth in many areas of the economy has stalled and many households are facing the highest level of debt repayment in more than 15 years.

“There is no doubt that the policy may be reduced in May or June if inflation improves,” the central bank said in a statement.

The Riksbank said it was concerned about the downside risks, particularly the possibility that easier policy could weaken the Swedish krona.

“Monetary comments should be adjusted cautiously going forward, in a gradual downward trend in rates,” the central bank said.

The Riksbank has forecast the rate at 3.44% in the fourth quarter.

“We’re predicting 25 key rate cuts in May – although it could happen in June which could happen after the ECB and Fed meetings – and three more before the end of the year,” said Andrew Kenningham, Chief Economist for Europe at Capital Economics. .

The Swedish krona weakened slightly against the euro after the decision was published.

For trade reasons, the krona is close to its weakest level this year against the euro.

With inflation seemingly subdued, central banks around the world are considering when to start easing policy. The Swiss National Bank was the first to exit last week, with the US Federal Reserve and the European Central Bank expected to follow suit in June.

In February, the Riksbank said that rates had risen significantly and it may be possible to reduce the policy in the first half of the year.

The last time the interest rate was cut was at the beginning of 2016 when it fell to -0.50%, a record low.

Negative or zero rates continued until 2022 as Russia’s invasion of Ukraine sent inflation soaring and forced the central bank to raise borrowing costs faster.

Analysts in a Reuters poll did not predict that interest rates would remain unchanged this month and that the central bank would signal a rate hike in May or June – the first of several seen this year.

The Riksbank has announced the next monetary policy decision on May 8.

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