MNI RIKSBANK WATCH: Riksbank Set For Third 25bp Cut This Cycle
The Riksbank looks set to cut by 25 basis points for the third time in four meetings this week, taking its policy rate to 3.25%, with the criteria for a 50bp cut, which were discussed at the August meeting, unlikely to have been met.
The Swedish economy has been bumping along in a mild recession with consumer prices on the target fixed interest rate measure, CPIF, falling below the 2% goal, leaving the door wide open to further easing. In August the Riksbank’s Executive Board stated that the policy rate could be cut at either two, or all three, of the remaining meetings in the second half of the year and some analysts even see an outside chance that the cut universally expected for September’s meeting will be by 50bp rather than 25bp.
Deputy Governor Anna Seim, in a recent interview in DI, stressed that a 50bp cut was not off the table, stating that guidance for rates to be cut “gradually” does not necessarily mean 25bp at each meeting, though for the hurdle for a larger reduction was high.
"If we see signs that inflation is persistently becoming so low as to threaten confidence in the inflation target or if real economic developments deteriorate rapidly, the policy rate should be cut more forcefully ...{but} I see no signs of such a situation at present," Seim said in the August minutes.
Alongside the policy decision the Riksbank will publish updated economic forecasts. It may also shed light both on where it sees the neutral interest rate and its thoughts on its steady state balance sheet, with asset sales proceeding apace.
The near-term growth outlook looks sure to be lowered, with the Riksbank's economic update in August stating that recent data indicate "that the growth outlook in Sweden and abroad is somewhat weaker than in the most recently-published forecast."
Inflation was already projected to stay below 2.0% in the June forecasts, with CPIF at 1.8% in 2025 and 1.9% in 2026, and while monthly data have been volatile the big picture may have changed little.
The Riksbank's current estimate of the nominal neutral interest rate is that it is in the lower part of a 2.5-4% range, which on current guidance is set to be reached before the end of this year, putting pressure on the Bank to clarify its views.
Governor Erik Thedeen has said that the RIksbank has been thinking about the end state for its balance sheet’s size and structure. The central bank has yet to be explicit about whether if it sees itself settling on Fed style "ample reserves", or on demand-led reserves, or moving back to a corridor system.