The Riksbank, Sweden's central bank, has lowered its key interest rate from 3.75% to 3.50%, marking the second reduction this year as the country grapples with weak economic growth and low inflation. The decision aligns with Riksbank's ongoing efforts to support the economy amidst a recession and high unemployment, which ranks among the highest in the European Union.
The central bank signalled the possibility of up to three additional rate cuts in 2024, a shift from its cautious stance in June, where it proposed a maximum of three cuts, including the one enacted on Tuesday. The primary driver behind this easing is the continued decline in Sweden's inflation rate, which has now remained below the Riksbank's 2% target for two consecutive months.
Experts highlight that Sweden's economy is particularly sensitive to interest rate changes due to its heavy reliance on international trade and the high level of household debt. Higher interest rates have increased mortgage payments, leading to reduced consumer spending, further dampening economic activity.
In addition, currency fluctuations are influencing Riksbank's monetary policy decisions, as the depreciation of the krona can drive up the cost of imports, potentially impacting inflation. However, with inflation under control, the Riksbank appears more focused on stimulating the economy, with projections suggesting that the key interest rate could drop to 2.75% by the end of the year.
