4 days ago
Will Sweden's central bank lower the interest rate this month?
Sweden's central bank, the Riksbank, lowered the country's key interest rate to 2.25 percent back in February, where it has remained since. The next interest rate announcement is scheduled for June 18th. How likely is it that the bank will choose to cut the rate?
Advertisement
Anders Wallström, head of forecasting at Swedbank, thinks that we could see two more cuts to the policy rate this year.
"At the moment we think there will be a cut now and another one in September," he told the TT newswire.
The policy rate is the central bank's main monetary policy tool. It decides which rates Swedish banks can deposit in and borrow money from the Riksbank, which in turn affects the banks' own interest rates on savings, loans and mortgages.
If bank interest rates are high, it's expensive to borrow money, which means people spend less and as a result inflation drops.
Susanne Spector, Danske Bank's chief economist, had a slightly different prediction.
"We think that the bank will wait until August to cut the rate, but that they'll open up slightly to a cut now while waiting for more information," she said.
Previously, the bank thought there would be no cut at all.
Advertisement
Spector added that opening up to a cut in June would lessen the pressure on Swedish households.
"There are still some risks, price plans are high and inflation is above the target," she added.
Swedbank and Danske Bank both believe that Sweden's weak GDP figures from the end of May are a sign that the central bank will need to stimulate the economy further by cutting the rate from the current level. The question, however, is how quickly it will do so.
"It's not set in stone and it's a very uncertain situation," he said of a cut in June. "What's weighing into the decision is not really inflation right now, but rather a weak economy. Those [GDP] figures are low and that would support a cut."
Inflation figures for May are scheduled to be released on June 5th. Swedbank expects the figures for CPIF inflation, the measurement Sweden's central bank uses, to be 2.7 percent, well above the 2 percent target set by the central bank, while Danske Bank predicts a figure of 2.7 percent.
CPIF inflation represents the consumer price index with mortgage fluctuations taken out of the equation.
If the inflation figures for last month are lower than expected, that would increase the chance of a cut to the key interest rate.
