The Riksbank cut the repo rate in December and signals further cuts, with an expected level of 2.25% in 2025. However, Nordea predicts a deeper rate cut.
“For better economic momentum, it is necessary for the Riksbank to continue lowering the repo rate towards 2 percent, which it is likely to do in the first half of 2025. It cannot be completely ruled out that it will continue to fall below 2 percent as inflation is expected to be around target next year, while the recovery is gradual,” writes Chief Economist Annika Winsth in an article.
Weak domestic demand, especially from households, is expected to weigh more heavily than international factors such as slightly higher inflation risks in the USA, according to the bank.
Nordea believes that the housing market has shown small signs of life, but from a historically low level relative to the large supply of housing. At the same time, resource utilization in the economy is weak, and employment is below expectations.
Even though the variable three-month interest rate is expected to drop by 0.5 percentage points in the first half of next year, it may be a good time to fix mortgage rates, according to Nordea.
“According to Nordea’s forecast, the variable rate does not fall to these levels. This suggests that it may be attractive to fix rates as it seems cheaper on paper, but also for households who want to have control over their expenses,” writes Winsth.
This strategic move by the Riksbank and the economic analysis provided by Nordea present a complex yet crucial insight into the future of interest rates and the housing market in Sweden. As the global economy continues to navigate uncertainties, the decisions made by central banks and financial institutions will play a pivotal role in shaping the financial landscape for years to come.