The second most developed country with loose monetary policy! The Swedish central bank cuts interest rates for the first time in 8 years

Global central banks have started the "interest rate cut" trend, with Switzerland taking the lead among developed countries and the Swedish central bank following suit.

On Wednesday, the Swedish central bank lowered its benchmark interest rate from 4.00% to 3.750%, in line with market expectations, and indicated that if the inflation outlook remains unchanged, it is expected to cut interest rates twice again in the second half of the year.

It is worth noting that this is the first interest rate cut by the Swedish central bank since 2016, taking action ahead of its neighboring Eurozone to support the Swedish economy plagued by recession.

Sweden stated in its announcement:

Inflation is approaching the 2% target, while economic activity is weak, allowing the Swedish central bank to ease monetary policy.

This move makes the Swedish central bank the second developed country central bank to adopt a loose policy after the Swiss central bank, highlighting the divergence in central bank policies as the Fed's interest rate cut plan is hindered by stubborn inflation pressure and a resilient economy.

Previous analysis has indicated that the statement from the Swedish central bank suggests that the European Central Bank may also preempt the Fed in monetary policy and take action to cut interest rates early.

European Central Bank Chief Economist Philip Lane previously stated in a media interview that with service sector inflation finally starting to ease, the rationale for a rate cut in June is increasingly strengthening.

Declining inflation, economy contracting for four consecutive quarters

Since the outbreak of the pandemic, global tightening policies have had a significant contractionary impact on the Swedish economy, which has contracted for four consecutive quarters. As a large part of the loan rates in Nordic countries are short-term fixed, consumers have reduced spending, housing construction has plummeted, and highly leveraged homeowners struggle to refinance maturing debts.

Swedish central bank Governor Erik Thedeen and his colleagues have also indicated that borrowing costs may be reduced in May or June. Their choice implies that with declining inflation and economic downturn, domestic conditions take precedence over any concerns that leading the larger peers will lead to a depreciation of the Krona again, thereby raising concerns about higher import prices.

After the data release, the euro rose 0.4% against the Swedish Krona to 11.7323.

UBS's previous report predicts that by June, Sweden's CPIF inflation rate will continue to decline to near 2%, providing more confidence to the central bank, and the inflation outlook has stabilized; Sweden is expected to see its first interest rate cut in May, but the likelihood of further cuts in June is low. According to Capital Economics, the Swedish central bank is expected to cut interest rates four times this year, with each cut being 25 basis points