Riksbank Cuts Key Rate and Signals Potential for More Easing

(Bloomberg) — Sweden’s central bank lowered borrowing costs by a quarter point, resuming attempts to jump-start growth in the biggest Nordic economy, and raised the prospect of one more cut this year.

The Riksbank lowered its key rate to 2%, the lowest level in 2 1/2 years, according to a statement on Wednesday. The move was expected by 17 of 21 economists surveyed by Bloomberg, with the rest forecasting no change. The central bank’s rate path indicates a trough in the first quarter at just under 1.9%, still somewhat above the market expectations ahead of the statement.

“The Swedish economy has lost momentum which has meant more limited inflationary pressure allowing space for more stimulus,” Governor Erik Thedeen told reporters in the Swedish capital. “The judgement we make today is that there is some probability of another cut this year.”

The krona fell 0.6% to 11.0323 per euro by 12:30 p.m. in Stockholm, hitting its lowest in more than a month after the announcement, and traders added easing bets, pricing in 11 basis points of further cuts by September and 17 points by November, according to overnight swaps data.

It’s a turnaround for Riksbank officials who as recently as March suggested they were done with cuts to borrowing costs after a cumulative 175 basis points since May last year. The shift follows a darkening of the outlook as trade war woes have drained optimism and as output in the export-dependent Nordic nation surprisingly contracted in the first quarter.

“The slightly more dovish message is sufficient to tip the scales, and we therefore lower our policy rate forecast and predict another rate cut to 1.75% later this year,” SEB AB’s strategists Olle Holmgren and Amanda Sundstrom said in a note to clients. “A rate cut in September seems to be the most likely scenario.”

What Bloomberg Economics Says

“The Riksbank’s June decision had a dovish tilt – it cut rates as expected but also opened the door to more easing later in the year. For now, we maintain our view that the central bank will hold its policy rate at 2% over the medium term – there are upside risks to inflation from the tension in the Middle East and we think growth is likely to recover more swiftly than the central bank expects. Still, the risks to our view are in one direction – if activity fails to pick up another cut is likely, probably in September.”

— Selva Bahar Baziki, economist. Click here to read more.

The Riksbank cut its forecast for economic growth in 2025 to 1.2% from 1.9% and left its expectation for 2026 unchanged at 2.4%. The central bank projected CPIF inflation, a measure of price growth excluding the effects of interest-rate changes, of 2.4% this year and 1.7% next year, lower than previously estimated.

While rising real wages for households help boost economic prospects, “the recovery is proceeding more slowly than expected,” the rate setters said. “Overall, the outlook for inflation and economic activity suggests some easing of monetary policy.”

Swedbank AB’s analysts Jesper Hansson, Carl Nilsson and Glenn Nielsen said the rate path indicates the probability of another rate cut this year at about 50%.

“We expect macro data and indicators to remain weak this summer and that the Riksbank therefore will cut the policy rate again in September to 1.75%,” they said in a note to clients. “Today’s communication indicates lower tolerance for economic underperformance and hence increases the likelihood of further monetary policy easing beyond September.”

The krona has gained more than 4% versus the euro so far this year, and has surged 16% against the dollar, as the currency has been a big beneficiary of the greenback’s selloff. It has also been supported on the view that Sweden’s economy will benefit from increased fiscal spending in the rest of Europe.

The Swedish announcement comes as neighboring Norway’s Norges Bank and the Bank of England are both expected to hold rates steady on Thursday. The Swiss National Bank is seen cutting rates on the same day to ward off flows into the franc.

–With assistance from Simon Lee, Naomi Tajitsu, Anton Wilen, Christopher Jungstedt, Charles Daly, Christian Wienberg and Sara Sjolin.

(Updates with comments from governor, analysts from third paragraph.)

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