Sweden cuts interest rates as Europe moves away from the Fed
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Sweden's central bank cut interest rates for the first time in eight years, as European monetary policymakers depart from the United States' view of supporting the economy even at the expense of their own currencies.
The Riksbank on Wednesday cut its key interest rate by 0.25 percentage points to 3.75%, the first time this century that the US Federal Reserve has eased policy.
“Monetary policy could be eased if inflation approaches target while economic activity is weak.” Riksbank Said. “If the inflation outlook remains sustained, we expect policy rates to be cut two more times in the second half of this year.”
Sweden's interest rate cut, which follows similar moves by Swiss, Czech and Hungarian central banks in recent months, signals Europe's increasing willingness to take a different path than the United States on monetary policy, economists say. Point out.
The expected rate cut at the European Central Bank's next meeting will confirm that: divergence. Because of the size of the U.S. economy and the enormous influence of financial markets and the dollar, the Federal Reserve typically takes the lead in changing interest rates.
After the National Bank's decision, the krona fell by 0.5% against the dollar to 10.9 kronor and by 0.4% against the euro to 11.7 kronor.
The Swedish currency was the third worst performer in the G10 group of most traded currencies this year, falling 7.5% against the dollar and 5% against the euro.
Kristina Nyman, chief economist at Handelsbanken and a former Riksbank official, said earlier that a rate cut would put further pressure on the krona, especially if the Fed delays its own rate cut.
“What could potentially be a problem is the currency. Sweden is a small open economy and we depend on what happens around us,” she added.
The Fed signaled last week that it would likely keep interest rates on hold as U.S. inflation remains higher than expected and the economy continues to grow robustly. longer and higher.
But inflation and growth in Europe have been weaker than in the United States in recent months, opening the door for the region's central banks to begin lowering borrowing costs before the Fed.
The E.C.B. signaled If price pressures continue to weaken as expected, the Bank is likely to start lowering interest rates at its next policy meeting on June 6. National banks have always acted ahead of the ECB, ending negative interest rates in 2019, more than two years before they ended in the euro zone.
As an EU member, more than two-thirds of Sweden's imports and half of its exports are traded with the EU, making the Nordic economy sensitive to changes in the euro and the ECB's monetary policy decisions.
However, there are concerns that if interest rates in Europe fall faster than in the United States, it could cause European currencies to weaken against the dollar, raising import prices and increasing inflation.National Bank Governor Eric Sedin The Fed recently acknowledged that the krona could be affected if interest rates remain high.
“It is particularly interesting to see the Riksbank in this episode, as the structure of the Swedish economy is closely linked to the broader European economy, and it therefore acts rather as a bellwether.” [than Switzerland] Be prepared for what comes from the ECB,” said Danske Bank strategist Pete Haines Christiansen.
Sweden's economy shrank both last year and in the first quarter of this year as a series of interest rate hikes caused house prices to plummet and consumption to fall, but there are also signs that things are worsening. inflation The Riksbank's target of 2% should be reached in 2024.
The National Bank stressed on Wednesday that the outlook for inflation is uncertain and that “we should therefore be cautious” in making further interest rate changes, especially as we are concerned about the strong US economy, the krona and geopolitical tensions. did.
Sweden's interest rate cut contrasts with sentiment in neighboring Norway, which is also suffering from a weak currency. Norges Bank signaled last week that it would keep interest rates on hold for now, and some economists now expect no rate cuts will occur until December or next year. That would likely make the country one of the last major central banks to start easing.
Additional reporting by Mary McDougall in London
Summarize this content to 100 words Unlock Editor's Digest for freeFT editor Roula Khalaf has chosen her favorite stories in this weekly newsletter.Sweden's central bank cut interest rates for the first time in eight years, as European monetary policymakers depart from the United States' view of supporting the economy even at the expense of their own currencies.The Riksbank on Wednesday cut its key interest rate by 0.25 percentage points to 3.75%, the first time this century that the US Federal Reserve has eased policy.”Monetary policy could be eased if inflation approaches target while economic activity is weak.” Riksbank Said. “If the inflation outlook remains sustained, we expect policy rates to be cut two more times in the second half of this year.” Sweden's interest rate cut, which follows similar moves by Swiss, Czech and Hungarian central banks in recent months, signals Europe's increasing willingness to take a different path than the United States on monetary policy, economists say. Point out. The expected rate cut at the European Central Bank's next meeting will confirm that: divergence. Because of the size of the U.S. economy and the enormous influence of financial markets and the dollar, the Federal Reserve typically takes the lead in changing interest rates. After the National Bank's decision, the krona fell by 0.5% against the dollar to 10.9 kronor and by 0.4% against the euro to 11.7 kronor.The Swedish currency was the third worst performer in the G10 group of most traded currencies this year, falling 7.5% against the dollar and 5% against the euro.Kristina Nyman, chief economist at Handelsbanken and a former Riksbank official, said earlier that a rate cut would put further pressure on the krona, especially if the Fed delays its own rate cut.”What could potentially be a problem is the currency. Sweden is a small open economy and we depend on what happens around us,” she added.A snapshot of the interactive graphic is shown. This is most likely because you are offline or have JavaScript disabled in your browser.The Fed signaled last week that it would likely keep interest rates on hold as U.S. inflation remains higher than expected and the economy continues to grow robustly. longer and higher.But inflation and growth in Europe have been weaker than in the United States in recent months, opening the door for the region's central banks to begin lowering borrowing costs before the Fed. The E.C.B. signaled If price pressures continue to weaken as expected, the Bank is likely to start lowering interest rates at its next policy meeting on June 6. National banks have always acted ahead of the ECB, ending negative interest rates in 2019, more than two years before they ended in the euro zone.As an EU member, more than two-thirds of Sweden's imports and half of its exports are traded with the EU, making the Nordic economy sensitive to changes in the euro and the ECB's monetary policy decisions.However, there are concerns that if interest rates in Europe fall faster than in the United States, it could cause European currencies to weaken against the dollar, raising import prices and increasing inflation.National Bank Governor Eric Sedin The Fed recently acknowledged that the krona could be affected if interest rates remain high.“It is particularly interesting to see the Riksbank in this episode, as the structure of the Swedish economy is closely linked to the broader European economy, and it therefore acts rather as a bellwether.” [than Switzerland] Be prepared for what comes from the ECB,” said Danske Bank strategist Pete Haines Christiansen.RecommendationSweden's economy shrank both last year and in the first quarter of this year as a series of interest rate hikes caused house prices to plummet and consumption to fall, but there are also signs that things are worsening. inflation The Riksbank's target of 2% should be reached in 2024.The National Bank stressed on Wednesday that the outlook for inflation is uncertain and that “we should therefore be cautious” in making further interest rate changes, especially as we are concerned about the strong US economy, the krona and geopolitical tensions. did.Sweden's interest rate cut contrasts with sentiment in neighboring Norway, which is also suffering from a weak currency. Norges Bank signaled last week that it would keep interest rates on hold for now, and some economists now expect no rate cuts will occur until December or next year. That would likely make the country one of the last major central banks to start easing.Additional reporting by Mary McDougall in London
https://www.ft.com/content/cd9066ae-0891-4402-b47a-35d41e18b8e6 Sweden cuts interest rates as Europe moves away from the Fed
