Analysts are optimistic that the Swedish central bank will implement a reduction in its key policy interest rate later this month, following five rate cuts throughout the previous year.
Recent data indicates that inflation in Sweden grew at a slower rate in December compared to November, which has contributed to speculation that the Riksbank may decide to decrease interest rates during their next monetary policy meeting scheduled for January 28.
Preliminary figures released on Wednesday showed the Consumer Price Index with fixed interest rates (CPIF) standing at 1.5% in December, a slight decline from the 1.8% recorded in November.
CPIF specifically measures price rises while excluding fluctuations from mortgage rates. Additionally, the CPIF excluding energy prices (CPIF-XE) was noted at 2.1% in December, down from 2.4% the previous month. The overall Consumer Price Index (CPI), which considers energy and mortgage rate variations, was registered at 0.8% according to preliminary estimates—a cooling from November’s 1.6%.
In Sweden, the CPI is the most commonly utilized inflation metric. However, it is the CPIF that the Riksbank primarily refers to for guiding its monetary policy decisions. The data released on Wednesday supports the notion that the central bank is likely to lower borrowing costs soon, following a historical trend of five interest rate reductions last year.
“If the trajectory of inflation and economic activity remains steady, a further reduction in the policy rate may occur within the first half of 2025,” stated the Riksbank in December. This statement came after a recent rate cut of 25 basis points.
Despite inflation rates now being below the bank’s target of 2% after surging in late 2022, policymakers remain cautious. “The rapid pace of interest rate cuts and the lagging effect of monetary policy on the economy suggest a more deliberate approach moving forward,” the Riksbank emphasized.
Additional economic data is expected to be released this Friday, which will include insights on household consumption and industrial production. Household consumption saw increases in July and August month-over-month, stirring hopes for an economic rebound, even though annual consumption levels still reflect a downturn.
However, consumption figures dipped on a monthly basis in September and October, prompting some analysts to advocate for enhanced fiscal stimulus.
Photo credit & article inspired by: Euronews
