Sweden’s Central Bank Cuts Key Rate and Sees Two or Three More Cuts This Year

Sweden’s central bank cut its key interest rate for the second time this year and indicated it is likely to lower borrowing costs again as a faltering economy threatens to push inflation further below its target.

The Riksbank cut its key rate to 3.5% from 3.75%, in line with a poll of economists conducted by The Wall Street Journal ahead of the decision.

“If the inflation outlook remains the same, the policy rate can be cut two or three more times this year, which is somewhat faster than the Executive Board assessed in June,” the Riksbank said.

At its last meeting in June, the central bank suggested it could cut the policy rate two or three times during the second half of the year as long as the outlook for inflation holds.

After peaking at over 10% at the end of 2022, the pace of inflation in Sweden has slowed sharply, with the bank’s target measure dropping below the 2% target in both June and July. At the same time, the economy contracted by 0.8% in the three months through June, while household consumption remains weak and the labor market continues to deteriorate.

In its statement Tuesday, the Riksbank said inflation is now stabilising close to the target and the risk of inflation becoming too high again has declined significantly. At the same time, it said wage increases are moderate, while the growth outlook in Sweden and abroad is somewhat weaker than expected.

“The overall picture of the economy is worrisome and warrants more easing,” says Bartosz Sawicki, market analyst at Conotoxia. “Consumption remains in the doldrums, and GDP growth is set to account for about 0.5% year-on-year in 2024.”

Policymakers have been especially concerned about lowering borrowing costs too quickly over concerns that it would weaken the Swedish currency further and contribute to a bounce in inflation, but those risks are also dissipating as interest rates have declined abroad, easing depreciatory pressure on the krona.

Conotoxia expects the krona will continue to recover in the remainder of the year on the back of improving global risk sentiment. “Hefty market pricing of looming rate cuts should limit the downside for the currency,” Sawicki says.

The European Central Bank began its easing cycle in June, and although it took a wait-and-see approach at its most recent meeting, it kept the door open for further rate cuts this year.

In the U.S., the Federal Reserve has so far held off making its first move and last month held interest rates steady in a range between 5.25% and 5.5% for an eighth consecutive meeting.

However, weaker-than-forecast U.S. non farm payroll data earlier this month sparked recession concerns and prompted markets to ramp up bets for interest rate cuts. These rate cut expectations have since been trimmed following stronger data, but a September cut is largely expected by markets and Fed Chair Jerome Powell ’s speech at the Jackson Hole Symposium on Friday will be closely watched for clues.

Alibaba Group co-founder Jack Ma said competition will make the company stronger and the e-commerce giant needs to trust in the power of market forces and innovation, according to an internal memo to commemorate the company’s 25th anniversary.

“Many of Alibaba’s business face challenges and the possibility of being surpassed, but that’s to be expected as no single company can stay at the top forever in any industry,” Ma said in a letter sent to employees late Tuesday, seen by The Wall Street Journal.

Once a darling of Wall Street and the dominant player in China’s e-commerce industry, the tech giant’s growth has slowed amid a weakening Chinese economy and subdued consumer sentiment. Intensifying competition from homegrown upstarts such as PDD Holdings ’ Pinduoduo e-commerce platform and ByteDance’s short-video app Douyin has also pressured Alibaba’s growth momentum.

“Only with competition can we become stronger and allow the industry to remain healthy,” Ma said.

The letter came after Alibaba recently completed a three-year regulatory process in China.

Chinese regulators said in late August that they have completed their monitoring and evaluation of Alibaba after the company was penalized over monopolistic practices in 2021. Over the past three years, the company has been required to submit self-evaluation compliance reports to market regulators.

Ma reiterated Alibaba’s ambition of being a company that can last 102 years. He urged Alibaba’s employees to not flounder in the midst of challenges and competition.

“The reason we’re Alibaba is because we have idealistic beliefs, we trust the future, believe in the market. We believe that only a company that can create real value for society can keep operating for 102 years,” he said.

Ma himself has kept a low profile since late 2020 when financial affiliate Ant Group called off initial public offerings in Hong Kong and Shanghai that had been on track to raise more than $34 billion.

In a separate internal letter in April, he praised Alibaba’s leadership and its restructuring efforts after the company split the group into six independently run companies.

Alibaba recently completed the conversion of its Hong Kong secondary listing into a primary listing, and on Tuesday was added to a scheme allowing investors in mainland China to trade Hong Kong-listed shares.

Alibaba shares fell 1.2% to 80.60 Hong Kong dollars, or equivalent of US$10.34, by midday Wednesday, after rising 4.2% on Tuesday following the Stock Connect inclusion. The company’s shares are up 6.9% so far this year.