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Sweden central bank cuts key rate as inflation eases

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Swedish inflation fell to 0.8% year-on-year in December, says Statistics Sweden.

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The Riksbank made its first rate cut in eight years in May, after a series of rate hikes aimed at reining in inflation. (LinkedIn pic)

STOCKHOLM:
Sweden’s central bank said today it was cutting its key interest rate again by a quarter point to 2.25% as inflation eases.

The Riksbank made its first rate cut in eight years in May, after a series of rate hikes aimed at reining in inflation.

Sweden’s interest rate has been held at 4% since September 2023.

“Given that the risk of inflation becoming too high is limited, at the same time as economic activity is weak, the executive board assesses that it is appropriate to cut the policy rate now,” the central bank said in a statement.

Swedish inflation fell to 0.8% year-on-year in December, according to Statistics Sweden.

The inflation measure used by the Riksbank to guide monetary policy, CPIF, which is adjusted for interest rates, came in at 1.5% in December, still below the central bank’s 2% target.

“A stronger economy is important in its own right, but it is also a necessary condition for inflation to stabilise close to the target going forward,” the bank said.

The Riksbank said its monetary policy would be guided by “a tentative approach” and it would “carefully evaluate the need for future interest rate adjustments.”

According to the central bank, there is uncertainty about developments outside Sweden that may affect its economy, for instance “economic policy in the US and Europe and the geopolitical tensions”.

Today’s rate cut was widely anticipated, with economists at analyst group Capital Economics predicting in a note that it “will be the final cut of this cycle as we expect the economy to rebound strongly this year”.

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