(Bloomberg) -- Sweden’s central bank could consider a faster pace of interest-rate cuts to spur an economic recovery if inflation remains low, minutes from its latest monetary policy meeting indicated.
The central bank last week decided to lower its benchmark rate to 3.25% from 3.5%, a third reduction since starting easing in May.
“The economy is currently weak and, as yet, there are few concrete signs of a recovery in household consumption,” Riksbank Governor Erik Thedeen said in the minutes published Tuesday. “Moreover, our target variable, CPIF inflation, was only 1.2% in August. These circumstances could be arguments in favor of faster interest-rate cuts.”
The urgency to make policy less restrictive has increased in recent months as the measure of inflation that the Riksbank targets has fallen some way below 2%, at the same time as a nascent economic recovery is faltering.
What Bloomberg Economics Says...
Executive Board members are concerned about the slow pick-up in domestic demand, while also stressing the need to remain vigilant against inflation risks. We maintain our call for two 25-basis point rate cuts by year-end, which is also the Riksbank’s main scenario. But further favorable inflation surprises could put a 50-bp move on the table at the November meeting.
— Selva Bahar Baziki, economist. Read more here
At the September meeting, the Riksbank moved in a more dovish direction, as the world’s oldest central bank indicated that it could soon depart from its quarter-point pace of rate cuts to take the benchmark half a percentage point lower in one go.
“There was perhaps less discussion of a 50 basis-point cut than expected, given the prominence it received in the press statement from the meeting,” Svenska Handelsbanken AB chief strategist Claes Mahlen said. “However, the board is clearly ready to act more swiftly if warranted.”
Nordea Bank Abp changed its call on the Riksbank after the minutes were published, saying it now expects a half-point reduction in November, rather than the quarter-point cut it had previously penciled in.
“The main reasons for the changed forecast are the soft signals from the Riksbank and expectations of swifter easing from the Fed and the ECB,” Chief Analyst Torbjorn Isaksson said in a note. “In particular, swifter easing from the ECB opens the door for more front-loading from the Riksbank.”
Thedeen and his deputies are set to announce their next decision on monetary policy on Nov. 7. By then, they will have access to inflation data for September as well as an early indication of economic growth in the third quarter.
Key Comments
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