Sweden’s central bank is diverging from the strategy advocated by its American counterpart by cutting interest rates.
The Financial Times reported the Riksbank’s reduction of its main interest rate by 0.25 percentage points to 3.75% marked the first rate cut for Sweden in eight years. This also marked the first time the Riksbank enacted a rate cut ahead of the Federal Reserve in this century.
“When inflation approaches the target while economic activity is weak, monetary policy can be eased,” the Riksbank said in a statement. “If the outlook for inflation still holds, the policy rate is expected to be cut two more times during the second half of the year.”
However, Riksbank Governor Erik Thedéen recently cautioned that his nation’s currency, the krona, could be impacted if the Fed keeps rates at the current rate.
The Swedish rate cut follows similar moves by the central banks of Switzerland, Czechia and Hungary. The European Central Bank is expected to cut its rates at its next meeting in June. On this side of the Atlantic, Fed Chairman Jerome Powell and other central bank leaders have played down the potential for upcoming rate cuts due to elevated inflation levels.
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