Riksbank Expected to Cut Interest Rates to 2.75% Amid Economic Troubles
The Swedish central bank, Riksbank, is expected to lower its policy interest rate by 0.50 percentage points to 2.75% at its meeting on Thursday, November 7, as it seeks direction in a challenging economic environment. This move aims to stimulate the sluggish economy and prevent inflation from falling below the 2% target.
Supported by a majority of analysts in a recent poll, this decision comes at a time when Sweden is grappling with a decline in economic activity and a significant decrease in the rate of inflation. Inflation fell to 1.1% in September after exceeding 10% at the end of 2022. During Riksbank's September meeting, President Erik Thedeen indicated a willingness to consider a half-point reduction, signaling further easing.
Vice President Per Jansson expressed concerns last month about the potential for inflation to drop to very low levels if the economy fails to gain momentum. Analysts now predict that the policy rate could fall to 2.50% by the end of the year and reach as low as 2.00% by mid-2025, although there are also speculations that reductions could occur more quickly.
External factors, such as the U.S. elections on November 5, are increasing uncertainty, with potential outcomes expected to impact European economies and currencies. Former President Donald Trump’s victory appears particularly influential and may lead Riksbank to adopt a cautious stance if the Swedish krona faces selling pressure. Among the potential long-term effects of Trump's win are rising tariffs and increased defense spending, which could elevate inflation.
Riksbank's interest rate decision will be announced on November 7 at 11:30 AM (GMT+3). While no forecasts for interest rates or the economy will be provided during this meeting, President Thedeen is scheduled to hold a press conference at noon (GMT+3).
As central banks globally pursue different paths, with less expectation of interest rate cuts in the U.S. and more anticipated in the Eurozone, Riksbank is facing a complex decision-making environment.