Sweden cuts key interest rate to boost staggering economy

Sweden’s central bank on Thursday cut its key interest rate by half a percentage point to 2.75% in what was described as the largest reduction in over a decade.

Riksbanken said the cut, the fourth this year, was “to provide further support to the economy and help inflation stabilize at the target.”

It added that “if the outlook for economic activity and inflation remains the same,” the policy rate may also be cut in December, and during the first half of 2025.

The monetary policy was gradually eased over the course of the year, as inflation declined and economic activity remained weak, the central bank said in a statement. “Despite an expectation among economic agents of better times ahead, there are still few clear signs of a recovery.”

Inflation in Sweden in October was 1.6%, according to Statistics Sweden. It was below the central bank’s 2% target. The seasonally adjusted unemployment rate was 8.5% of the workforce during the third quarter of 2024.

The country’s economic output contracted in the third as well as in the second quarter the flash estimates show from the country’s statistics office, meaning that Sweden entered into recession.

The last time the rate was cut in Sweden was in September and it was by 0.25 percentage points.

The interest rate cut was the largest reduction in over 10 years, Swedish news agency TT wrote. At its highest in February 2023, the 12-month inflation rate was 12%.

The new rate applies from 13 November, the central bank said.

Norges Bank holds key rate steady

In neighbouring Norway, the central bank maintained the policy rate unchanged at 4.5% Thursday. Norges Bank Governor Ida Wolden Bache said it “will most likely be kept” there to the end of 2024.

The Norges Bank said that in recent years, the policy rate has been raised significantly to bring down inflation, with the rate held at 4.5% since December 2023. The interest rate has contributed to cooling down the Norwegian economy and dampening inflation. In Norway, the consumer price index was 3.0% for the period September 2023-September 2024.

Sweden is part of the European Union but does not use the euro currency, and Norway stands outside the EU.