Following the Federal Reserve, the Swedish central bank cut interest rates as expected but hinted that easing is about to end

Following the Federal Reserve's announcement of a 25 basis point rate cut, the Swedish central bank today also announced a reduction of the benchmark interest rate by 25 basis points to 2.5%, in line with market expectations. However, the central bank also hinted that the easing policy may soon come to an end, with only one more opportunity for a rate cut remaining.

This rate cut marks the fifth reduction in this round of easing by the Swedish central bank, aimed at revitalizing the economy of the largest economy in the Nordic region. This move is consistent with the Swedish central bank's forecast in November, when it indicated that further easing could occur in December and 2025, having cut rates by 50 basis points that month.

Officials cited by Bloomberg also stated, "If the outlook remains unchanged, there may be another reduction in the policy rate in the first half of 2025." However, they emphasized, "we will carefully assess the necessity of future rate adjustments."

After this rate cut, the Swedish krona saw a slight increase against the euro. However, the currency has been affected by Sweden's weak economy, having fallen more than 3% this year, with the Swedish krona nearing historical lows against both the dollar and the euro, increasing pressure on the central bank.

Analysts point out that the Swedish economy is very sensitive to interest rates, especially as the tightening policy that began in 2022 pushed the country's rates up to 4% in 2023, severely undermining consumer and industry confidence.

After controlling inflation, the Swedish central bank has turned its attention to the economy, which has lagged for three years. Although current rates have fallen from pre-financial crisis levels, output has not yet recovered, and some members of the central bank's board have even expressed concerns that inflation may stagnate at too low a level.

On Wednesday, the Swedish Ministry of Finance also lowered its forecast for economic growth in 2026, stating that the country's economy seems likely to remain weak for some time. Additionally, Swedish central bank officials expressed concerns about the economic impact of a potential re-election of Trump as President of the United States.

However, it is worth noting that Swedish central bank Governor Thedeen has repeatedly stated that he believes Sweden's inflation can provide the central bank with room to continue cutting rates.

Swedish economist Selva Bahar Baziki stated:

“Although the news indicates that Sweden will only cut rates once more in the first half of 2025, as the economy fails to recover, we still believe that the Swedish central bank will be forced to cut rates twice in early 2025, bringing the policy rate down to 2%.”