The Swedish central bank has just made a second cut in its interest rates. The monetary authorities in Stockholm set their main key interest rates at 3.5% and intend to do more than that.
Given the worsening economic situation and inflation (CPIF, which excludes interest rate changes) which did not exceed 1.7% in July, the Riksbank estimates that it has the necessary room to manoeuvre to remain on the bearish track. They therefore point out that further reductions in the price of money rent are to be expected, anticipating up to three additional rate cuts in 2024, which could well set the reference rate at 2.75% by the end of the year. This would be a real boon for Sweden’s highly indebted households, and the leading Nordic economy as a whole.
For now, the exchange markets are reacting well to this news and the crown has even appreciated slightly against the euro over the last month.
Nevertheless, if the interest rate differential between Sweden and the US were to widen significantly the Koruna would be weakened in exchange markets, leading to an increased risk of inflation rebound (a weaker Koruna would raise the price of imported goods at the same time as private demand would recover thanks to cheaper credit).
The risk would be particularly high if the ECB and Fed finally relax their interest rates less quickly than expected. We are not investing in Sweden at this time.