Probability of Sweden reducing the main interest rate in August
In a recent development, the Riksbank, Sweden's central bank, is considering further interest rate cuts as inflation rates continue to decline. This decision comes after the bank's key interest rate was reduced from 2.5% to 2.25% in February 2025, in response to the declining inflation trends.
The current Consumer Price Index with fixed interest rate (KPIF) stands at 1.2%, a significant drop from the recent highs and an indication of effective measures against inflation. This decline was reported in September 2024.
The Riksbank's next monetary policy decision is scheduled for August 20, 2025, following a meeting on August 19, 2025. This decision will be crucial in determining whether further easing is necessary, as analysts predict the next rate cut could potentially occur as late as December this year.
The fixed-income market, however, suggests that the next rate cut (a cut of 0.25 percentage points) will take place this autumn instead of in August. This shift is primarily due to higher-than-expected inflation figures for June 2023, when the CPIF inflation rose to 2.9%, compared to the predicted figure of 2.5% and the 2.3% seen in May.
The Riksbank uses CPIF inflation, which removes mortgage rates from the consumer price index, for its analysis. The bank's target for CPIF inflation is 2%, much lower than the inflation figures reported in June.
The main reason for the drop in the chance of an interest rate cut in August is the higher-than-expected inflation figures for June. Despite this, the Riksbank remains cautious and open to further adjustments based on economic conditions.
The Riksbank's policy rate is its main monetary policy tool, and it decides which rates Swedish banks can deposit in and borrow money from. This, in turn, affects banks' interest rates on savings, loans, and mortgages.
In June, the Riksbank hinted that there could be another cut later this year, with a 50% chance at its last meeting. Two weeks ago, the market believed there was a high chance of a cut in August followed by at least one more cut this year. However, the current prediction is for a very small chance of further cuts from the Riksbank after the cut.
Despite these developments, the Riksbank continues to monitor the economic recovery and inflation trends closely, ready to make adjustments as necessary to maintain its target inflation rate and support sustainable economic growth.
Business analysts are closely watching the Riksbank's next monetary policy decision on August 20, 2025, as they predict further interest rate cuts in finance could potentially occur as late as December this year. The Riksbank's policy rate, its main monetary policy tool, directly affects banks' interest rates on savings, loans, and mortgages, thus impacting the broader business landscape.
