Nordea's economists forecast that the Riksbank will not lower the key interest rate this year or next due to persistent high inflation. Despite hints from Riksbank's Erik Thedéen about potential rate cuts, such actions could weaken the krona and exacerbate inflation issues. The current market sees a 100% probability of a rate cut to 1.75% this year, with a 30% chance of a further reduction to 1.5%.
Nordea Predicts No Interest Rate Cuts Amid High Inflation
Nordea Predicts No Interest Rate Cuts Amid High Inflation
Persistently high inflation means the Riksbank will not be able to lower the key interest rate—neither this year nor next—according to economists at the major bank Nordea.
If the Riksbank were to lower the key interest rate from the current 2 percent, as Erik Thedéen and his board have suggested might be possible later this year, it could weaken the krona. This, in turn, could create new inflation problems, Nordea's economists warn.
"For households, it is crucial that inflation comes down, and this outweighs another key interest rate cut," the bank writes.
In the interest rate market, the probability of another rate cut this year to a 1.75 percent key interest rate is currently at 100 percent. Thereafter, the probability of another cut, down to 1.5 percent, is about 30 percent.
According to an economic forecast from earlier this week, Swedbank's economists expect two key interest rate cuts this year. SEB's economists believe the Riksbank will settle for one cut.
The key interest rate—which has been halved from 4 percent in just over a year—normally affects short-term rates throughout the economy, especially variable mortgage rates.
If the interest rate on a mortgage of three million kronor were reduced by 0.5 percentage points, it would lower the loan cost by 1,250 kronor per month, excluding the effects of interest deductions.