Sweden’s central bank is tipped to slash interest rates by a quarter of a percentage point at its upcoming policy meeting next week, although the decision remains a "close call," according to analysts at UBS.
In a note to clients on Tuesday, the analysts flagged that markets are pricing in 6.4 basis points (bps) in cuts this month, along with a cumulative 8.4 bps for November and 14.5 bps by the end of the year.
"The main argument for the cut is that the summer pickup in inflation, which pushed both [the] headline and core [consumer price index at constant interest rates] back above 3%, is very likely temporary, largely driven by travel-related services, while the economy is weak," the UBS analysts led by Franziska Fischer said.
August’s reading of headline inflation in Sweden climbed to 3.2% following a jump in electricity prices, although, stripping out energy costs, the "core" inflation closely watched by the Riksbank edged down to 2.9%.
The analysts forecast a gradual decline in core inflation for the rest of the 2025 and then a "substantial step down" to well below 2% early next year.
Still, the relatively muted Riksbank easing being factored in by investors suggests the possibility that officials may have "no urgency" to cut rates and will remain focused on corraling stubbornly-elevated inflation, the analysts said. Underlying inflation, while cooler, remains above the Riksbank’s forecast from June, they added.
"We acknowledge that cutting rates with inflation around 3% and above the forecast is a communication challenge," they wrote.
In August, the Riksbank kept its key interest rate on hold at 2.00%, but said there is some probability for a borrowing cost reduction this year as the central bank looks to address the twin pressures of above-target inflation and tepid activity in an economy facing wider geopolitical uncertainty.
Source :
https://www.investing.com/news/economy-news/swedish-central-banks-next-rate-decision-is-a-close-call-ubs-says-heres-why-4240053
