MNI RIKSBANK WATCH: August Cut On Cards; Doubts On Easing Pace
MNI ((MNI) London) - MNI (LONDON) - The Riksbank is expected to deliver its second rate cut this cycle when it announces its policy decision on Aug 20, after inflation fell from a double-digit high to below the 2% target and as the economy slows, with analysts divided as to whether it will signal faster easing ahead.
Having eased by 25 basis points in May, the Riksbank left its policy rate unchanged at 3.75% in June and published a policy path showing an August rate cut was likely, though not fully priced in, while its guidance pointed to either two or three more cuts this year. Subsequent data have shown inflation behaving largely as expected, with the target CPIF, CPI with a fixed interest rate, a touch softer than the Riksbank expected and core in line.
CPI was up 2.6% on the year in July, while CPIF inflation came in at 1.7% compared to the 1.8% the Riksbank expected and CPIF ex-energy was 2.2%.
GUIDANCE
A key question is whether the central bank will lower its projected rate path, with June’s showing only gentle easing after the initial cuts, with the policy rate dipping to 2.9% in mid-2025 and 2.6% three years ahead, for a total of only 1.4 percentage points of easing over the cycle from the 4.0% peak.
The Riksbank’s June forecast for a recovery in growth to 0.5% in the second half of the year, and on up to 2.4% annualised in 2026, was based on the assumption that household consumption would increase and real disposable household income rises as interest rates are lowered.
With inflation back around target, the Swedish central bank will be able to place greater weight on demand and economic activity, after having previously focused on getting inflation back down. It had already anticipated a rise in unemployment, and any slowdown in the trade intensive Swedish economy's key export markets will also be a concern. (See MNI INTERVIEW: Riksbank Could Cut 2-3 Times More In 24-Gerlach)
But analysts are divided as to whether Governor Erik Thedeen will see the need to lower the rate path and guidance to open the door to faster easing at a time when inflation is close to target, quantitative tightening is ongoing and there are hopes of an economic pick-up.
Predictions range from the rate path being little changed and only two cuts being delivered in H2 to the RIksbank switching to signalling three-to-four cuts in the second half, while others assume that it will just increase somewhat the likelihood of three cuts, including the one in August.