Riksbank Cuts Key Interest Rate

The central bank of Sweden, the Riksbank, has decreased its key interest rate by a quarter percentage point to 2.50%.

This decision, announced on Thursday, aligns with expectations. However, after five rate cuts this year, the bank is shifting towards a more cautious stance as it heads into 2025.

Economic Background

The Swedish economy has been stagnant for the past two years, following a period when the Riksbank raised rates to combat escalating inflation, which soared to around 10% towards the end of 2022. In May, the central bank began reducing rates again, and inflation has since fallen below the 2% target.

Despite this reduction, consumer and business spending remains restrained, with a slight uptick in inflation in recent months.

The Riksbank stated, "If the outlook for inflation and economic activity remains unchanged, the policy rate may be cut once again during the first half of 2025."

This follows a larger-than-usual half-percentage-point cut in November, when rate-setters anticipated a cut in December and possibly one or two more reductions in the first half of 2025.

Cautious Approach

The bank emphasized its cautious approach, noting that "The interest rate has been reduced rapidly and monetary policy affects the economy with a lag. This argues for a more tentative approach when formulating monetary policy going forward."

Following the announcement, the Swedish crown experienced a strengthening.

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