Swedish Central Bank Expected to Cut Rates This Week, with More Reductions Anticipated by Year-End: Reuters Poll

STOCKHOLM (Reuters) – Sweden’s central bank is anticipated to reduce its policy rate by a quarter percentage point to 3.50% on August 20, with two additional cuts expected before the year’s end as inflationary pressures continue to diminish, according to a survey of analysts conducted by Reuters on Monday.

All 16 analysts surveyed predict a quarter-point reduction in the coming meeting, with the policy rate expected to conclude the year at 3.00%, followed by further declines in early 2025.

Adrian Prettejohn, Europe Economist at Capital Economics, noted, “Swedish inflation and activity data have been weaker than policymakers anticipated. We believe this will prompt them to lower the key policy rate from 3.75% to 3.50% and signal at least another 50 basis points of cuts for the remainder of the year.”

The central bank cut the policy rate for the first time in eight years in May but kept it steady at 3.75% in June, stating that it could implement up to three more reductions by year-end amid decreasing price pressures.

Headline inflation has been on the decline since peaking at over 10% in 2022, falling short of the central bank’s 2% target for the past two months.

The economy is showing signs of slowdown, with weakened activity noted among manufacturers, households, and the construction sector in the second quarter.

While markets anticipate that the U.S. Federal Reserve may begin reducing interest rates in September, concerns about aggressive local rate cuts negatively impacting the currency and rekindling inflation have diminished, though a minority of analysts suggest that there may be room for quicker cuts in Sweden this year.

Nordea economist Torbjorn Isaksson commented, “We maintain our forecast for rate cuts at all four upcoming monetary policy meetings, projecting a policy rate of 2.75% by year-end, with an additional cut early next year.”

However, with persistent inflation challenges in the eurozone and the European Central Bank expected to lower rates only twice more this year, Swedish rate setters might opt for a more cautious approach.

The central bank of neighboring Norway announced on August 15 that it would maintain its key rate, emphasizing the need for a tight stance for an extended period to combat inflation.

The Swedish central bank has three remaining rate-setting meetings for the year following the August meeting, scheduled for September, November, and December. The Riksbank will announce its policy decision at 0730 GMT.