Sweden's central bank, Riksbank, has made a significant move by aggressively cutting its benchmark interest rate in a bid to stimulate economic activity, also indicating the possibility of further reductions in the near future.
The Executive Board of the Riksbank resolved to decrease the policy rate by 50 basis points, bringing it down to 2.75 percent. This decision exceeded market expectations, which had forecasted a mere quarter-point cut.
The board noted that to provide additional support to economic activity, a swifter reduction of the policy rate is necessary, beyond the pace assessed in September.
"If the projections for inflation and economic activity stay consistent, another rate cut could occur at the forthcoming monetary policy meeting in December and potentially during the first half of 2025," the Riksbank stated.
Additionally, the bank opted to maintain its government bond portfolio at SEK 20 billion. This implies that the ongoing sales of nominal government bonds are projected to conclude by the end of 2025.
"Economic conditions are currently challenging to evaluate, particularly international developments, especially following the recent US election," the bank noted.
"There are risks associated with geopolitical tensions, foreign economic policies, the krona exchange rate, and domestic economic activity that could influence our outlook for economic activity and inflation, potentially prompting a different approach to monetary policy," the bank elaborated.
Adrian Prettejohn, an economist at Capital Economics, remarked that despite a recent rebound in consumer spending and the anticipation of robust growth next year, policymakers are seeking more definitive signs of a sustainable economic recovery before ceasing the rate cuts.
Data revealed earlier in the day indicated that consumer price inflation remained stable at 1.6 percent in October. However, CPIF inflation edged up to 1.5 percent, from 1.1 percent in September.
