Sweden’s Central Bank Cuts Key Rate and Sees Two or Three More Cuts This Year
The Riksbank cut its key rate to 3.5% from 3.75%
2 min
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.
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The federal budget has rattled property investors. But the biggest mistake isn’t the tax changes, it’s the conclusion many are drawing from them.
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The recent budget has forced a reckoning for property investors.
Negative gearing now restricted to new residential builds, the CGT discount gone and on paper, the numbers look different.
And many investors are responding by pivoting toward yield, prioritising cash flow over capital growth in a way that property strategists say misses the point entirely.
“The debate has shifted to yield versus growth as if they are opposing forces,” says Abdullah Nouh, founder of Melbourne-based buyers’ agency Mecca Property Group. “But that framing is itself the mistake.”
Nouh, who works with high-net-worth families and investors on long-term acquisition strategy, argues that capital growth remains the primary driver of genuine wealth creation and that the post-budget environment has made quality assets more important, not less.
The numbers make his case plainly. An additional $500 per week in rental income is welcome. A prestige asset appreciating by $1 million over a market cycle is transformative.
These are not equivalent outcomes, and portfolios built around yield at the expense of location and land value tend to generate income while wealth stands largely still.
The more nuanced shift Nouh is seeing among sophisticated investors is a move toward assets where both outcomes can be engineered simultaneously – established homes on substantial land in quality locations, where the existing dwelling can be repositioned, rental returns improved, and the underlying land value compounds independent of what sits on it.
For investors with existing equity, commercial property is also entering the conversation in a more serious way.
Prestige industrial assets, medical centres and long-leased essential retail offer income profiles that residential property in most capital city markets cannot currently match: longer lease terms, tenants covering outgoings, and greater predictability than the residential tenancy cycle.
“The investors who build lasting wealth are rarely the ones who chased yield or growth exclusively,” says Nouh.
“They are the ones who built a strategy they could sustain – one that generated enough income to hold quality assets through multiple cycles while those assets compounded in value.”
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