MNI RIKSBANK WATCH: Cuts 25bp, Signals Faster Easing Ahead
MNI (LONDON) - The Riksbank delivered an expected 25-basis-point cut in September, taking its policy rate to 3.25%, but pointed to what it called a clear shift in the balance of risks and said it would accelerate the pace of easing if things evolved as it now expected.
The chances of an inflation overshoot have declined while economic recovery has been slower than anticipated, the Executive Board said, announcing a change in policy in a more expansionary direction. The policy rate may be cut at both of the remaining meetings this year and one of these cuts could be by 50bp, it said.
At the press conference, Governor Erik Thedeen said the baseline scenario was for consecutive 25bp reductions, but that a 50bp cut would still be compatible with its policy of "gradual" easing. September's cut was the third 25bp reduction in four meetings. (See MNI RIKSBANK WATCH: Riksbank Set For Third 25bp Cut This Cycle)
The collective rate path in the Monetary Policy Report would also be compatible with one or two cuts in the first half of next year, with the policy rate reaching 2.30% by Q3 2025 and then holding at 2.25% through 2026 and 2027, which the Bank said would be roughly in line with the neutral rate. This rate path was notably lower than the previous one, which had the policy rate at 2.85% in Q3 2025 and 2.64% three years out.
Thedeen said the Riksbank will have done a lot more work on its neutral rate estimate by the time of the next Monetary Policy Report, suggesting the 2.25% assessment could be revised.
On the assumption that policy is eased as the Riksbank envisages, economic recovery is expected to gather pace next year. The Riksbank forecast GDP growth of 0.8% in 2024, 1.9% in 2025 and 2.5% 2026. Inflation on the targetted fixed-interest rate measure, CPIF, was shown persistently undershooting the 2.0% goal, coming in at 1.7% this year, down from 2.0% in the previous forecast, 1.6% in 2025, down from 1.8% and 1.9% in 2026, unchanged from the June projection.
Unemployment was predicted to hold steady at 8.4% next year before declining to 8.0% in 2026.