The big bank sees no reason for Riksbank Governor Erik Thedéen to postpone the planned interest rate cut in January.
In a bold and insightful commentary, Swedbank predicts that despite some board members wanting to wait a bit longer, there will be a rate cut in January with the possibility of another cut down to 2% in the spring. The market’s pricing of the policy rate aligns closely with the Riksbank’s interest rate path, with a 50% likelihood of a cut in January and a fully priced-in cut in March.
Looking at inflation and the economy, Swedbank notes that the scenarios described by the Riksbank pose some downside risks to the economy. The potential for higher import tariffs to the EU in response to Trump’s trade policies could lead to higher inflation but lower economic growth. Swedbank suggests that even after the expected rate cut in January, the likelihood of a further rate cut in the spring is greater than a rate hike.
The bank’s forecast indicates that the Riksbank may be disappointed with the strength of the economic recovery. They anticipate that the central bank will continue to lower the interest rate to 1.75% by June. However, if indicators and outcomes in the spring confirm sustained growth in the Swedish economy, there is a significant risk that the Riksbank will pause the rate cuts at 2%.
Swedbank’s analysis goes beyond the surface to reveal the complexities and uncertainties surrounding the Riksbank’s monetary policy decisions. By delving into the potential implications of global trade dynamics on Sweden’s economy, they paint a vivid picture of the challenges and opportunities that lie ahead. Their nuanced perspective sheds light on the intricacies of central banking and economic forecasting, providing valuable insights for investors, policymakers, and the general public alike.