Swedish Central Bank Cuts Policy Rate Amid Weak Economic Growth
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Loading... - Leo Walker
- 31 Jan 2025
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On Wednesday, Sweden's central bank, the Riksbank, announced a cut to its key policy rate, lowering it from 2.50% to 2.25% in an effort to stimulate sluggish economic growth. This decision marks the fifth consecutive rate cut and the sixth since May of the previous year.
In a statement, the Riksbank explained, "Given that the risk of inflation becoming too high is limited, at the same time as economic activity is weak ... it is appropriate to cut the policy rate now." The central bank had previously indicated in December that it expected to implement only one more rate cut in this cycle during the first half of 2025.
The Riksbank's recent actions reflect a significant shift in monetary policy, as it has rapidly reduced rates after previously hiking them in response to global inflation pressures stemming from the pandemic and geopolitical events, such as Russia's invasion of Ukraine. After peaking at 4% in late 2022, the central bank has now eased its policy six times since the spring of 2024, driven by growing confidence that inflation, which exceeded 10% at its peak, is now under control.
Currently, the Riksbank is focusing on the broader economic landscape, which has seen minimal growth over the past couple of years. The central bank anticipates that growth will pick up this year, partly due to the recent rate cuts. However, the outlook remains uncertain, and the Riksbank has stated that it is prepared to take further action if necessary.
The statement highlighted specific uncertainties, particularly regarding international developments, such as economic policies in the United States and Europe, as well as ongoing geopolitical tensions. Additionally, there are risks associated with the recovery of the Swedish economy and fluctuations in the krona exchange rate.
In summary, the Riksbank's decision to cut the policy rate reflects its commitment to supporting economic growth while maintaining a cautious approach to inflation and external economic factors.
