Many experts predicted that Sweden’s central bank, the Riksbank, would lower the key interest rate at its next meeting in August. Have higher-than-expected inflation rates changed that prediction?
Many experts predicted that Sweden’s central bank, the Riksbank, would lower the key interest rate at its next meeting in August. Have higher-than-expected inflation rates changed that prediction?
Many experts predicted that Sweden’s central bank, the Riksbank, would lower the key interest rate at its next meeting in August. Have higher-than-expected inflation rates changed that prediction?
Two weeks ago, a report from economists at major Swedish bank SEB put the chance of a cut to the interest rate in August at 36 percent.
Now, that figure has dropped to 20 percent, according to an analysis of the fixed-income market. The main reason for the drop is the higher-than-expected inflation figures for June which Statistics Sweden released on July 7th.
Those figures showed that CPIF inflation in June rose to 2.9 percent. Not only was that higher than the 2.3 percent the country saw in May, but it was also higher than expected ‒ economists had predicted a figure of 2.5 percent.
CPIF inflation (which removes mortgage rates from the consumer price index) is the figure used by the Riksbank central bank. It has a target of 2 percent, much lower than the inflation figures reported in June.
Now, the fixed-income market is predicting the next rate cut ‒ a cut of 0.25 percentage points to 1.75 percent ‒ will take place this autumn instead of in August, potentially as late as December this year.
After that cut, the market predicts a very small chance of further cuts from the Riksbank. Just two weeks ago, the market believed there was a high chance of a cut in August followed by at least one more cut this year.
The Riksbank itself hinted that there could be another cut later this year, putting the chances of that happening at around 50 percent at its last meeting at the end of June.
The policy rate is the central bank’s main monetary policy tool. It decides which rates Swedish banks can deposit in and borrow money from the Riksbank, which in turn affects the banks’ own interest rates on savings, loans and mortgages.
If bank interest rates are high, it’s expensive to borrow money, which means people spend less and as a result inflation drops.
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