Riksbank To Cut Policy Rate Twice This Year To 1.75%, Swedish Think Tank NIER Says

(RTTNews) - Sweden's central bank is set to lower interest rates twice this year due to the economic downturn and subdued inflation outlook, the National Institute of Economic Research said on Tuesday as it lowered the growth forecast for the economy.

"The somewhat deeper and more prolonged downturn, along with lower inflation, means that the Riksbank is expected to cut the policy rate twice this year, bringing it down to 1.75 percent, and then holding steady for the rest of the year and throughout 2026," NIER, a state-run think tank, said.

In March, the NIER had forecast that the policy rate would remain unchanged at 2.25 percent throughout the forecast period. The Riksbank kept the policy rate steady at 2.25 percent in March and May, following a quarter-point reduction in February. In May, the bank assessed that "it is somewhat more probable that inflation will be lower than that it will be higher than in the March forecast" and this could "suggest a slight easing of monetary policy going forward".

Citing a downward revision to the 2024 GDP growth and a significantly worse than expected economic performance in the first quarter, the NIER lowered the GDP growth forecast for this year to 0.9 percent from 1.7 percent. The calendar-adjusted growth projection was revised down to 1.1 percent from 1.9 percent.

The 2026 economic growth forecast was trimmed by 0.2 percentage points to 2.7 percent and the calendar-adjusted GDP expansion outlook was lowered to 2.5 percent from 2.7 percent.

Gross fixed capital formation is now expected to shrink 1.8 percent this year versus 2.0 percent growth seen in March. Exports are projected to grow 3.4 percent, which is an upgrade from 2.8 percent forecast earlier. The import growth forecast was lowered to 1.4 percent from 2.3 percent. The CPIF inflation projections for this year and next were trimmed by 0.1 percentage points each to 2.4 percent and 1.5 percent, respectively.

Similarly, the Swedish unemployment rate forecasts for this year and next were lowered by 0.2 percentage points each to 8.8 percent and 8.4 percent.