Swedish central bank cuts policy rate, says easing cycle likely done

By Simon Johnson

Sweden's central bank cut its policy rate to 1.75% from 2.00% on Tuesday and said the easing cycle - which began in spring last year - was likely complete, with economic growth expected to start picking up speed.

Sweden's central bank has been weighing above-target headline inflation against an economy that has stuttered since the start of the year.

The headline inflation figure remains high, but rate-setters have become increasingly convinced price pressures are temporary, while the economy needs a final boost.

"We are cutting now and our best judgement going forward is that we are going to remain here for a while," Riksbank Governor Erik Thedeen told reporters.

"Inflation is still too high, but we feel more confident that inflation is going to fall in line with in our forecast. At the same time, growth has surprised negatively and has been weak for a while."

GROWTH FORECAST CUT FOR THIS YEAR, RAISED FOR 2026

The Riksbank cut its forecast for GDP growth this year to 0.9% from June's 1.2%.

But next year, it saw faster growth of 2.7% from the previous forecast of 2.4%, in part due to the fiscal largesse promised by the government in its election year budget.

"We think rates will now remain on hold until late next year, at which point we have pencilled in a hike back to 2.0%," Adrian Prettejohn, an economist at Capital Economics, said in a note.

The central bank also lowered its forecast for headline inflation next year to 1.0% from 1.7% seen in June.

The dip is mainly due the government's promise to temporarily halve the VAT on food, a measure economists at Handelsbanken have said could cut headline inflation by as much as 0.7 percentage points.

SEIM VOTED FOR UNCHANGED POLICY

The Riksbank said budget tax cuts were not assessed to materially affect inflationary pressures.

Deputy Governor Anna Seim entered a reservation against both the policy decision and the rate path. She voted for an unchanged policy rate at Tuesday's meeting, together with a policy rate path signalling some probability of a further cut later this year.

Most analysts in a Reuters poll had expected no change in rates, though a large minority had forecast a cut. The median forecast in the poll was for rates to end the year at 1.75%.

The Riksbank publishes its next policy decision on November 5.