The Riksbank leaves the interest rate unchanged, but now says that it is seriously starting to plan for reductions, writes Frida Bratt, savings economist at Nordnet.
Here she answers three hot questions after today’s interest rate announcement.
What was the most important thing in today’s message?
That the Riksbank opens up for another interest rate cut this autumn. That the interest rate was left unchanged today was expected, and therefore it was instead the forecast going forward that was interesting. Previously, the Riksbank spoke of two more reductions this autumn, but now they are opening up for three. This means that you have a smoother line forward. Inflation is close to the target and the economy is weakened, and this autumn the executive board will act.
Why can’t you just lower the interest rate immediately?
There are certainly those who argue that it should have been lowered now in June, and that the Swedish economy risks taking unnecessary damage as long as the interest rate is kept at a high level. The Riksbank, on the other hand, argues that there are reasons to proceed cautiously. You want to avoid a scenario where you risk lowering too much too soon and that interest rate cuts together with, for example, fiscal stimulus could cause inflation to pick up again. Then it is better to put on the life jacket and wade forward with caution. You also don’t want to deviate too much from other central banks, because that could result in an even weaker krona, which could trigger inflation. However, the krona has strengthened recently, which gives the Riksbank more room for action in the future. This is also shown by the new forecast of two to three reductions this autumn.
How low can my mortgage interest rate be?
We will not get to a situation where interest rates will be as low as before the pandemic. It was an abnormal and unique situation. Now Sweden is in a recession, which means that the Riksbank will lower the interest rate to stimulate the economy. According to the executive board, two to three more reductions are expected this year, and according to the Norwegian Economic Institute, for example, the key interest rate is expected to drop to 2.25 percent next year. If we assume that the banks keep their current margins on the mortgages, this means variable mortgage interest rates of around 3-3.5 percent.