Tomorrow, both the Swedish Riksbank and the American Fed will announce their interest rate decisions. The majority of interest rate traders are expecting a double rate cut from the Riksbank, a sentiment echoed by top Swedish economists.
“I believe that the Riksbank will cut rates by 50 basis points and the Fed by 25 basis points,” says Christina Nyman, chief economist at Handelsbanken. “The Riksbank has indicated this possibility in their communication back in September. The data hasn’t deviated significantly from their forecasts, but indicators such as GDP growth, retail sales, unemployment, and employment have been weaker.”
Nyman also points out that the central bank’s business survey suggested a slower pace of recovery than anticipated, prompting Handelsbanken to change its forecast to a 50 basis point rate cut. This would bring the Riksbank’s rate to 2.75%.
American Election and the Fed
President Trump’s policies, including increased tariffs, have been highlighted as potential drivers of inflation. While Trump’s victory in the American election is not expected to influence the Fed’s decision tomorrow.
“Not in the short term, but eventually. I think the Fed wants to demonstrate its independence and will base its decision on short-term economic impacts. There won’t be immediate effects from the policy changes, although expectations of faster growth could materialize due to Trump’s policies,” says Nyman. “Regarding fiscal policy, it will take a year before a new budget is implemented. It also depends on how quickly tariffs can be implemented. They won’t act preemptively on any of these factors.”
Ulf Andersson, chief economist at DNB, shares Nyman’s view on the upcoming rate decisions, predicting a 50 basis point cut for the Riksbank and a 25 basis point cut for the Fed. He believes the Riksbank has a clear opportunity for a 50 basis point cut.
“They have the option to act more swiftly with rate cuts, which they outlined in the September meeting as the possibility of a 50 basis point cut at one of this year’s meetings. Given the recent data, I think they will take that chance,” says Ulf Andersson.
Weakening Swedish Krona
In October, the Swedish krona depreciated against the dollar. The outcome of the US election has also negatively impacted the krona, depreciating by about 20 öre at the time of writing. The trend against the euro has not been as negative.
However, Ulf Andersson believes that the Riksbank will not focus on the krona during the interest rate announcement but on the weak real economy.
“If the krona continues to weaken, possibly due to a strong dollar, it could pose challenges for future decisions. It may lead to a more cautious approach to rate cuts compared to a scenario with a stronger krona. However, this will be weighed against other factors. If inflation remains under control, they can proceed with monetary easing despite the weak krona,” says Andersson.
The Riksbank will announce its interest rate decision at 9:30 am on Thursday.