The governor of the Riksbank keeps the key interest rate in Sweden at 4 percent. The DNB economist is surprised by the forecast going forward.
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On Wednesday morning, new forecasts for inflation and the key interest rate came from Sweden’s central bank, the Riksbank.
There is by far the most tension linked to the signals about when the first interest rate cut will come.
The key interest rate is kept steady at 4 percent. It is completely in line with what the analysts and experts had believed in advance.
– If the inflation outlook continues to be favorable, the key interest rate may
will probably be lowered in May or June, writes the Riksbank in the recent monetary policy report.
– However, there are risks that could lead to inflationary pressure increasing again,
for example, new supply disruptions as a result of the geopolitical unrest, that
the krone continues to weaken, or that the companies’ price behavior does not normalize as expected, the report states.
– High probability of cuts in May
– Will there be cuts in May?
– Yes I believe. I am strengthened in that belief today, says Amanda Sundström, interest rate and currency strategist at SEB to E24.
The Swedish bank SEB thought ahead of the interest rate decision and the new monetary policy report that the interest rate would be lowered in May.
– The fact is that the new monetary policy report is quite similar to what we had expected. We thought it would show a high probability of cuts in May. The Riksbank says there is an equal probability for May and June. We still think it will be May, says Sundström.
– Earlier than we had imagined
Senior economist at DNB Markets, Oddmund Berg, says he is surprised that the Riksbank is highlighting an interest rate cut in May as a possibility.
– We had not imagined that they would communicate such a rapid interest rate cut, he says to E24.
– They were more duet duet You are “dove” when you believe that the inflationary pressure is so low that you have to keep a low interest rate.than we had imagined. It is surprising that they mention May.
He points out that there has previously been uncertainty about whether the Riksbank will cut the key interest rate before the European Central Bank (ESB) and the US Federal Reserve (FED).
Sundström in SEB believes the FED and the ECB will cut after the Swedish Riksbank.
The danger of that move is that the difference in the interest rate may exceed the value of the Swedish krone.
Lower bottom level
He also points out that the Riksbank’s new interest rate path will end up at 2.58 per cent. It is also surprising, says Berg in DNB Markets.
– We thought it would be a little higher.
– We had thought that a faster decline would be signalled, but it was faster than we had estimated. Both faster and with a lower bottom point. It doesn’t look unreasonable, but it is surprising.
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Good inflation figures
Earlier this week, senior economist at SEB, Robert Bergqvist, told E24 that he thought the first interest rate cut would come as early as May.
He also believed that the Riksbank will get ahead of both the ECB and the FED.
There have been many promising key figures from Sweden recently.
The Riksbank closely monitors inflation as measured by CPIF CPIFThe price increase excluding interest rate changes on mortgages, which stood at 3.3 per cent in January. It was just above the Riksbank’s forecast. In February, it came in at 2.5 percent. It was below the Riksbank’s forecast. Bergqvist in SEB says CPIF inflation is expected to stay around 2 per cent this summer.
Starting to show weakness
The Swedish Economic Research Institute (KI) predicts that the policy rate will be cut four times by the end of 2024. They also believe that GDP in Sweden will rise by 0.8 percent and that inflation will fall to 2.9 percent this year.
Robert Bergqvist in SEB said earlier this week that the Swedish economy has already started to show signs of weakness as a result of high interest rates.
He refers to the Riksbank’s and KI’s measurements and says the companies’ plans for price increases in the coming year are limited.
– Conversations with business customers also confirm the picture of moderate price increases in 2024, says Bergqvist.
