Sweden's Central Bank Holds Rates, Eyes Potential Cuts Amid Weak Economy

Sweden's central bank has retained its key interest rate at 3.75%, hinting at potential rate cuts in the latter half of the year if inflation remains stable. The Riksbank's forecast has adjusted due to promising inflation trends and a slightly strengthened krona. Economic activity, however, remains weak.

Sweden's central bank held its key interest rate at 3.75% as expected on Thursday and said if inflation prospects remain the same, the policy rate can be cut two or three times during the second half of the year.

In May, when it cut the policy rate for the first time in eight years, the Riksbank had said it expected two more cuts in 2024. "Given that inflation is fundamentally developing favourably, economic activity is assessed to be somewhat weaker, and the krona exchange rate is a little stronger, the forecast for the policy rate has been adjusted down somewhat," the Riksbank said in a statement.

"If inflation prospects remain the same, the policy rate can be cut two or three times during the second half of the year." Headline inflation, which peaked at over 10% late in 2022, is close to the central bank's 2% target and likely to slow further this year.

The economy remains weak and many households are struggling with mortgage payments, making rate cuts a welcome prospect for many. However, the Riksbank remains cautious.

"There are risks linked, for instance, to inflation abroad, geopolitical unease, the krona exchange rate and the recovery in the Swedish economy that can lead to the policy rate being either higher or lower than forecast," it said.

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