Sweden’s Riksbank is anticipated to lower its policy rate further to 2.5%, a move aligned with the consensus forecast. This would follow a significant 50 basis point cut in November. The central bank, which had been aggressively reducing rates alongside the Bank of Canada, is seeing positive outcomes from its monetary policy adjustments.
The Swedish economy is experiencing a resurgence, particularly in the housing market, where floating-rate mortgages are prevalent. The reduction in interest rates has led to a recovery in sentiment, an increase in transactions, and a rise in house prices, which are now growing at a rate of nearly 8% year-on-year. Additionally, consumer confidence has soared back to pre-pandemic levels.
Employment conditions in Sweden have also shown signs of stability, with the unemployment rate ceasing to climb and redundancy levels plateauing, though still slightly higher than pre-Covid averages. Despite these improvements, the Riksbank may not be ready to halt rate cuts, as the end of the cutting cycle could be approaching.
Sweden’s economic growth remains modest, as reflected in the latest GDP data. Household consumption has been weak, even with the improved consumer sentiment. Inflation data has exceeded the Riksbank’s earlier predictions from September, but there is little expectation for a significant rise in 2025.
Upcoming spring wage negotiations are forecasted to yield results in line with the Riksbank’s 2% inflation target, given the moderate inflation expectations from both employers and employees.
Considering the risks posed by global trade tensions, particularly those stemming from Donald Trump’s trade policies, and Sweden’s export-dependent economy, further rate cuts are projected.
Analysts from ING predict not only a reduction this week but also two additional cuts next year, potentially bringing the policy rate down to 2%. The Riksbank’s updated interest rate projection, expected later this week, is likely to mirror this trajectory.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
