On Thursday, the Riksbank announced a double cut in the repo rate, which was followed shortly by banks lowering their mortgage rates as well.
After the cut, the repo rate stands at 2.75%, in line with the forecasts of Swedish major banks, so it did not come as a surprise to Handelsbanken’s chief economist, Christina Nyman. However, she is not entirely convinced of its necessity.
“The important thing is to maintain a clear downward path, but I believe they could have cut by 25 basis points now. A double cut only creates uncertainties and confusion,” she told Afv.
Future cuts were also hinted at in the Riksbank’s decision, with another reduction expected in December and one more in the first half of 2025, contingent on inflation and economic outlooks.
“It will probably be ‘regular’ cuts of 25 basis points,” said another chief economist, Jens Magnusson at SEB. This would bring the repo rate down to 2.25%.
“I actually think there will be two cuts next year, bringing the rate all the way down to 2%. But we’ll see what happens with potential trade wars, which of course limit predictions about the repo rate,” Magnusson added.
The interest rate cut came just a day after the US elected its new president, Donald Trump, who has championed a protectionist trade policy with significantly increased import tariffs.
As Sweden’s third-largest export market is the US, the country’s newly elected president became a focal point during the press conference held by the Riksbank in conjunction with the rate cut on Thursday.
“Donald Trump has won, and it is quite clear that the important announced trade barrier, which he has talked about in his campaign, could affect economic and inflation developments,” said Erik Thedéen.
Will Donald Trump follow through on his promises? According to Skandia’s macroeconomist Seyran Naib, it’s hard to say.
“He says one thing one day and another the next,” she said. However, with the Republicans also securing the Senate, she can imagine Trump’s trade barriers becoming a reality.
“Tolls are his favorite word. If he raises import tariffs, it would have a significant impact on Sweden, given that we are a small economy heavily dependent on exports,” Naib explained.
She sees no immediate effect on the future interest rate cuts flagged by the Riksbank on Thursday, believing that any impact on the repo rate would occur later than the first half of 2025.
Handelsbanken’s Christina Nyman is more confident that Trump will raise import tariffs. She also sees the risk of a trade war where other countries would respond to US tariffs with their own to protect domestic industries.
“It would have a negative effect on world trade and the global economy,” Nyman noted.
“I believe Trump will raise tariffs, but it is difficult to predict the timing. However, in the short term, it could give a boost to the Swedish economy,” Nyman suggested.
The potential boost would come from American companies importing more before tariffs are raised. Nyman believes there are many scenarios at play, making it hard to predict how Sweden’s repo rate in 2025 might be affected.
SEB’s Jens Magnusson believes there is still a lot of uncertainty surrounding the US president-elect and his economic policies. However, he is clear on the potential trade barriers.
“We should not portray it as too big a problem, but if the US raises tariffs significantly, it is obviously something we do not wish for. We do not think it is good for anyone, not even the US economy,” Magnusson said.
“It is unfortunate. Unfortunate for Europe and for small export-dependent countries like Sweden,” he added.
At the same time, he emphasized the importance of not exaggerating the situation and expressed confidence in the EU’s readiness to take action if Trump significantly raises US import tariffs.
On Thursday at 8:00 PM Swedish time, the US Federal Reserve will also release its interest rate decision.
Text: Klara Matsdotter