On Thursday June 27, 2024 Sveriges Riksbank left its key rate unchanged at 3.75% and at the same time said that inflation is close to the 2% target. The rate cut is expected to take place in two or three stages this year. This is a scenario that the European Central Bank may follow.
Although the Sveriges Riksban decided to leave the key rate unchanged at 3.75% in June, the momentum of monetary easing has already been achieved. In May, the central bank cut the rate for the first time in eight years amid a marked slowdown in inflation, and on Thursday it reiterated that monetary policy should be adjusted gradually. Above all, the central bank explained that if the inflation outlook remains unchanged, the key rate could be cut two or three times in the second half of the year.
Inflation is almost back to 2%
Economists believe the Bank of Sweden's speech paves the way for a rate cut in August. The reason for this upbeat statement was that inflation adjusted for changes in mortgage rates (CPIF), the Bank of Sweden's core measure, rose at an annualized rate of 2.3% in May, close to the 2% target. The Bank notes that inflation trends have been favorable since late last year.
ECB plans to cut rates in 2024
The European Central Bank, like its Scandinavian counterparts, has just begun a cycle of rate cuts. At its June 6 meeting, rates were cut from a range between 4% and 4.75% to a range between 3.75% and 4.5%. "Based on an updated assessment of the inflation outlook, the evolution of core inflation and the strength of the transmission of monetary policy, it is now appropriate to moderate the degree of monetary tightening after nine months of stable rates," explained Christine Lagarde, ECB president.
And for good reason: price inflation, which the ECB wants to bring to 2% at all costs, was 2.6% year-on-year in May, down sharply from the record high of 10.6% reached in October 2022. Based on this observation, she finally admitted on March 20 that she could not wait until they had all the information they needed. "By doing so, we risk adjusting our policy too late," she added.
At the beginning of March, after lowering its eurozone inflation forecasts to 2.3% in 2024 from 2.7% previously expected and to 2.0% in 2025, the Frankfurt-based institution also downgraded its growth forecasts. According to the central bank, the eurozone's gross domestic product (GDP) will grow 0.6% in 2024, down from the 0.8% projected in December. By comparison, growth in the U.S. economy should remain at 2.1% in 2024, according to the Fed. "The economy remains fragile," Christine Lagarde noted at the April meeting. However, she warned in June, "We will maintain fairly restrictive key rates for as long as necessary to achieve this target (2%)".
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