(Bloomberg) -- Swedish central bankers are likely to resist a longer wait before a final reduction in borrowing costs even as they are adopting a more patient approach to changes in monetary policy.
At the meeting last month, several executive board members signaled their preference for a quarter-point key rate cut in the first months of the year, minutes published on Thursday showed. The officials had said in their statement dated Dec. 19 that the key rate “may be cut once again during the first half of 2025” if the outlook matches their expectations.
“I can imagine that the policy rate will probably be cut again when we meet after the festive season,” Deputy Governor Aino Bunge said. Her colleague Per Jansson also voiced support for a reduction during the first quarter, saying that “this cut needs to come quite early in the year, in January or possibly at the meeting after that in March.”
At the gathering on Dec. 18, the Riksbank decided unanimously to lower the key rate to a two-year low of 2.5%, signaling one more quarter-point cut left in this easing cycle. Still, five reductions in borrowing costs have yet to produce tangible signs of a rebound from a three-year stand-still.
“The minutes confirm the message from the report that the policy rate is approaching a level where the board think it will be appropriate to become more cautious to cut rates further and wait for the effects of the rate cuts in 2024 to become more clear,” Olle Holmgren, SEB AB’s chief strategist for Sweden, said in an emailed comment. “Still, the minutes were on the margin more dovish than expected.”
SEB is keeping its forecast of a quarter-point cut at the meeting this month, while a second reduction already in March is becoming more unlikely, he added.
What Bloomberg Economics Says...
“The Riksbank Executive Board was more hopeful of a revival of domestic demand and increasingly worried about uncertainty and inflation risks, their December monetary policy meeting minutes show. That change in focus may explain why the policymakers signaled only one more interest rate cut in 2025. We see data pointing to a further delay in the expected pick up in activity, thus supporting two more rate cuts instead.”
—Selva Bahar Baziki, Sweden economist. Read more here.
Governor Erik Thedeen said “it will soon be appropriate to wait and see before making any further changes to the policy rate,” while highlighting the need to evaluate the response of the Swedish economy to 150 basis points of rate cuts already made.
“It is now a question of assessing whether the speed is sufficient, or whether it needs to be increased further, or whether it is too fast,” he said. “This evaluation requires some patience.”
--With assistance from Jonas Ekblom, Sanne Wass and Rafaela Lindeberg.
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