Swedish CB keeps key rate on hold, could still cut this year

STOCKHOLM: Sweden’s central bank held its key interest rate at 2.00 per cent as expected on Wednesday and said it still sees some probability of a further rate cut this year as it tries to balance above-target inflation with an economy running in low gear.

The Swedish government on Wednesday raised its GDP growth forecast for 2026 to 3.0 per cent from 2.6 per cent seen in May while repeating a forecast of 0.9 per cent expansion in 2025.

“We are still in an economic downturn. At the same time, recovery is expected to get going during the autumn of 2025 and continue at a good pace next year,” the government said in a statement.

In 2024, GDP growth was 1.0 per cent.

“We, and many others expect, believe that the recovery will begin again at the end of this year and continue solidly through next year,” Finance Minister Elisabeth Svantesson said.

Headline inflation was 1.9 per cent in 2024 but has accelerated again this year. In July, it was 3.0 per cent.

The central bank, which targets 2.0 per cent inflation, on Wednesday kept its policy rate at 2.00 per cent as expected but said it may cut later again this year as it balances above target inflation with an economy running in low gear.

Swedish growth has stalled this year with households hesitant about spending and businesses worried by tariffs and geopolitical uncertainty. At the same time, inflation rose more than expected over the summer.

“With inflation at 3.0 per cent and the inflation target at 2.0 per cent, we need to be vigilant,” Governor Erik Thedeen told reporters at a news conference.

“That’s why the board decided on an unchanged policy rate of 2.0 per cent. There is some possibility of a rate cut during the remainder of the year.”

In June, the Riksbank said there was a roughly 50% chance of a cut in the second half of the year and Thedeen said the outlook remained the same.

“We forecast that the Riksbank will cut the policy rate at the next meeting in September,” economists at Swedbank said in a research note.

The Riksbank’s next rate decision is September 23.

The Riksbank is one among many central banks trying to navigate a safe path through a geopolitical landscape in flux and a finely balanced outlook for inflation and growth.

It expects price pressures to ease in the months ahead as technical factors and seasonal prices for items like holidays normalise, but rate-setters remain wary that inflation could still prove sticky.

“We continue to judge further rate cuts as unlikely, though not entirely off the table,” DNB Carnegie said.

A cut would be “contingent on a deterioration in the Swedish economic outlook alongside a convincing decline in inflation. Neither of these scenarios is part of our baseline,” the DNB Carnegie note said.

A downgrade to flash second quarter GDP figures - which showed 0.1 per cent growth on the quarter - or a soft inflation number for August could tip the balance toward a cut. Final GDP numbers are due on August 29 with August inflation due on September 4.

Reuters