Swedish central bank sees one rate cut in first half of 2025, minutes show

Sweden's central bank expects to cut its key interest rate once in the first half of 2025 when it has had time to assess the impact of recent rate cuts on growth and inflation, minutes of its latest policy meeting showed.

On Dec 19, Sweden's central bank lowered its key interest rate by quarter of a percentage point to 2.50% and said that after five cuts in 2024, it was time to take a more "tentative" approach. It forecast one cut in the first half of this year.

"We need to evaluate and analyse how the Swedish economy responds to the rate cuts we have made, how the fiscal stimulus affects economic activity and how international economic conditions develop," Governor Erik Thedeen said in the minutes published on Thursday.

"This evaluation requires some patience."

After taming inflation, the central bank has increasingly turned its attention to the economy, which has struggled over the last few years.

The central bank sees stronger economic activity as necessary for inflation to stabilise at the 2% target.

However, inflation has picked up slightly in the last couple of months, and banking group Swedbank warned on Thursday that the central bank needs to keep an eye on price pressures in industry and the weak Swedish crown ahead of the next monetary policy decision on Jan. 29.

"I currently expect another rate cut in the first half of 2025. But there are signs that inflation may surprise us on the upside," Deputy Governor Anna Seim said.

After one cut in the first half of the year, the Riksbank expects the policy rate to then stay at 2.25% through 2026.

The Riksbank made a bigger than expected cut in November - of half a percentage point - meaning policy easing has proceeded slightly faster than expected.