Sweden’s Riksbank forecasts 2 to 3 more interest rate cuts this year

Sweden’s Riksbank on Thursday said it may cut interest rates up to three more times this year — as the central bank’s governor, Erik Thedéen, warned it must proceed with caution.

“Two or three cuts is a forecast, it’s not a promise, and we will adapt monetary policy according to incoming information,” Thedéen told CNBC’s Arabile Gumede.

The Riksbank announced Thursday it would hold its policy rate at 3.75% at its June meeting, after cutting by 25 basis points in May as it became one of the first major economies to embark on the latest path of monetary easing.

It had forecast just two cuts during the second half of the year at its May meeting.

“Our inflation forecast is pointing to a good inflation outlook, we’re still already now very close to our target and our forecast has pointed to 2% inflation in the coming months and years,” Thedéen said.

“Of course, there is uncertainty around that, we got a little bit of a backlash in May, so we want to have a little bit more time until we decide to cut.”

Positive signs include cooling inflation expectations, weaker price setting and a “more well-behaved wage setting” than is currently being experienced in the euro area or Norway, he said.

Primary risks include strong demand fueling an uptick in domestic price pressures, movements in the Swedish krona, a global supply shock or rebound in energy rates, he continued.

In order to deliver more rate cuts, “we don’t need to have a super positive surprise, we need to have data coming in in-line overall. Of course, not all the data will be exactly as our forecast. So I think that would be the main message,” Thedéen told CNBC.

Headline inflation in Sweden was 3.7% in May, slightly higher than the 3.5% forecast in a Reuters poll of economists.

In Thursday’s announcement, the Riksbank noted that inflation excluding energy was now below 3% and that readings since fall had overall been lower than its own projections. Its latest forecast is for headline price rises to average 3.1% this year, with a sharp fall to 1.3% in 2025.

The central bank also considers CPIF, the consumer price index with a fixed interest rate, which excludes the effect of changed mortgage rates. It sees this at 2% this year and 1.8% next year.

The Swedish economy, meanwhile, is seen expanding from a 0.2% contraction in 2023 to 1.1% growth in 2024 — well above its previous 0.3% forecast — followed by 1.7% growth in 2025.

“The [Riksbank’s] new statement reads more dovish than before,” James Smith, developed markets economist at ING, said in a Thursday note. That makes a change from the start of most recent hiking cycle, when the Riksbank was keen to tighten policy faster and more aggressively than the European Central Bank, he said.

“Sweden’s more interest rate-sensitive economy is coming under more noticeable pressure, which means the Riksbank can more confidently commit to further easing at a time when the ECB is becoming more cautious again,” Smith added.

The ECB carried out a well-flagged 25 basis rate cut at its June meeting, taking its key rate to 3.75%, but policymakers have been less committal on the path ahead. Money market pricing suggests another two 25 basis point cuts before the end of the year, according to LSEG data.

“Swedish officials are also making a big thing of the fact that inflation expectations are much lower, which should feed into more modest wage settlements at the next round of talks in early 2025,” Smith added.