Therefore, the Swedes can cut interest rates – and not Norway – E24

The economists highlight three reasons why the Swedes can cut, while we have to wait.

The Riksbank lowers the interest rate to 3.75 per cent.

This is the first interest rate cut in Sweden since increases were started in the wake of the corona pandemic.

Here at home in Norway, however, it may take a little while before the key interest rate can be cut.

At the previous interest rate meeting, Norges Bank signaled an unchanged interest rate “somewhat longer than we previously envisioned”.

Three reasons

– Why can the Swedes cut interest rates, while we have to wait?

– There are actually three good reasons for that, says senior economist at DNB Markets Oddmund Berg.

• First, he says that the devaluation of the krone that has been seen in Norway has led to strong wage growth. Several of the most important wage settlements in Norway have ended with a framework of 5.2 per cent wage growth.

– That effect has not been seen in Sweden, where they have a two-year wage agreement for 2023 and 2024 which actually came before inflation picked up. So they have lower wage growth, says Berg.

• Secondly, he points out that the Swedes have had weaker economic development.

As in Norway, the Riksbank’s inflation target is price growth of two percent over time. Price growth in Sweden has, with the exception of a jump in January, steadily calmed over the past year. Price inflation excluding changes in interest rates (KPIF) down to 2.2 per cent. It is this that the Swedish central bank is most concerned with.

Here at home in Norway, inflation is high. In March, however, price growth dropped to 3.9 per cent. It was lower than what Norges Bank had envisioned. New update coming later this week.

• Finally, Berg points out that the Swedes have lower public expenditure than in Norway.

– We have a more resistant state than they have in Sweden, says Berg

– Stabilizes at the target

– This was very much as we had expected.

That’s what Amanda Sundström, interest rate and currency strategist at Skandinaviska Enskilda Banken (SEB), tells E24 about the interest rate cut.

– We had both expected that it would be lowered and that the interest rate path from March was still relevant, and that is what is done.

She believes the biggest difference between Sweden and Norway is the inflation outlook.

– We think it will fall and stabilize at the target (around 2 per cent) during the year. The underlying inflation is lower than in Norway, she says.

Expect further cuts

Interest rate manager at Swedish Öhman Fonder, Lars Kristian Feste, says the cut shows that inflation in Sweden is under control.

– The Riksbank obviously has cover to lower the interest rate in line with inflation of 2.2 per cent and a weaker economy, but also has a pronounced need to appear independent of the ECB, says.

He adds that it now remains to be seen how the currency market interprets the Riksbank’s actions.

Just like the Norwegian one, the Swedish krone has struggled over time. Strong krone depreciation in Norway and Sweden is primarily due to global conditions, according to currency experts.

The Swedish krone weakened after the interest rate cut. One Swedish krone cost NOK 1.0054 before the interest rate cut, while immediately afterwards it costs NOK 1.0002 via a small round below NOK 0.999.

– Depending on inflation and the Swedish krone, we believe, like the Riksbank, that there will be 2 interest rate cuts in the autumn and that the interest rate will be 3.25 per cent at New Year, says the head of interest rates to E24.