Erik Thedéen: If the outlook remains the same, the policy rate may be cut again
In an uncertain world, it is important that we have our own house in order. The Swedish economy is fundamentally stable and there are good prospects for stronger growth and rising employment during the year. But we need to be vigilant about risks, both of weaker economic activity and to the inflation outlook. These were the words of Governor Erik Thedéen when he spoke today about the economic situation and current monetary policy at Swedbank in Stockholm.
Date: 15/01/2025 15:30
Speaker: Governor Erik Thedéen
Place: Swedbank
Erik Thedéen, governor.
The previously high inflation rate fell back in 2024, which is welcome and benefits everyone. The latest outcome for CPIF inflation in December was 1.5 per cent.
“We know that CPIF inflation can be temporarily affected by fluctuations in energy prices. Excluding changes in energy prices, inflation is 2 per cent. After a couple of months in which inflation was higher than expected, the outcome for December was slightly lower than the Riksbank’s forecast. But at the same time, indicators of price pressures such as price plans and producer prices have risen slightly and the krona has weakened, which I think calls for some vigilance. Overall, however, the inflation outlook appears broadly stable.”
Economic activity is still weak. The Riksbank assesses that we are close to a turnaround, but it is uncertain how strong the recovery will be. A significant part of the Riksbank’s interest rate cuts were made towards the end of 2024 and it takes time for monetary policy to take full effect.
“During the coming months, many Swedish households will benefit from rising real wages, lower interest expenditure and the fiscal policy measures that have been decided. In other words, there are good prospects for higher growth and rising employment going forward. It is important in itself that economic activity strengthens, but it is also a necessary condition for inflation to stabilise close to the target.”
Thedéen also underlined the uncertainty surrounding international developments.
“As you know, there are significant risks related to geopolitical and trade conflicts that could lead to new inflationary impulses. The widening gap between the growth outlook in the United States and the euro area also creates uncertainty about future interest rates and exchange rates. The dollar has strengthened against several currencies and US interest rates have risen significantly, which has also caused Swedish long-term interest rates and fixed mortgage rates to rise. This is a clear sign that we are not isolated from developments in the United States and underlines the need for the tentative approach signalled by the Riksbank in December,” said Thedéen.
“As we said at our monetary policy meeting just before Christmas, it is likely that the interest rate will be cut once more in the first half of this year, given that our forecasts hold. At our next monetary policy meeting at the end of January, we will weigh up the information received and assess how it affects the outlook for economic activity and inflation and the policy rate,” concluded Mr Thedéen.