MNI RIKSBANK WATCH: First-Half Cut In Sight As Inflation Eases

Sweden’s central bank looks set to signal that it could cut interest rates in the first half of the year on Wednesday, bringing forward its projection for the likely beginning of its easing cycle from late 2025.

While Riksbank Governor Erik Thedeen and colleagues could opt to signal easing by as soon as the May meeting, this would come before the likely timing of the European Central Bank’s first cut, at a time when the krona has been volatile. Alternatively they could steer towards June instead or else leave the precise timing ambiguous between the two months. (See MNI INTERVIEW: Riksbank Eyes Krona In Dovish Shift-Governor)

While the Riksbank is set to leave its policy rate on hold at 4.0% at its March meeting, according to analyst consensus, board members have been clear that a near-term cut, which would be reflected in the March Monetary Policy Report’s rate projections, is very possible.

BOARD POINTS TO LIKELY CUT

Thedeen told a parliamentary finance committee on March 12 that a first-half cut could not be ruled out, and in February Deputy Governor Per Jansson pointed to May and June when asked by MNI about a March cut, adding also that the Riksbank wanted more information on the plans of other central banks to minimise the risk of krona weakening. ECB President Christine Lagarde has since pointed to June as a potential starting point for eurozone easing.

The krona is stronger than forecast in November on its real trade weighted index, the KIX, but has depreciated markedly over the past couple of months, which may add to the case for caution among policymakers.

In November’s forecast round, the Riksbank showed inflation continuing to fall to close to 2% in the second half of this year on both the target CPIF, CPI with a fixed interest rate, measure and core CPIF, which excludes energy. In February CPIF fell to 2.5% from 3.3% in January, down from 9.4% the same month a year ago, as the impact of the energy shock faded. CPIF has even tracked below the Riksbank’s low-inflation alternative scenario.

A downward shift in the inflation profile and rate path would raise questions as to why the committee did not cut immediately, with hikes taken off the table.