The Riksbank, Sweden’s central bank, announced a notable reduction in its key interest rate on Thursday, lowering it by 0.5 percentage points to 2.75%, marking the most substantial rate cut in over ten years. This is the fourth rate cut in 2024 as the bank aims to provide additional economic support and help inflation settle near the central bank's 2% target.
Riksbank Governor Erik Thedéen explained in a press release, “This reduction is necessary to support the economy and stabilize inflation.” The central bank indicated that if current economic and inflation trends persist, additional cuts may be considered in December and during the first half of 2025.
Sweden's annual inflation rate fell to 1.6% in October, lower than the bank’s 2% target, while the seasonally adjusted unemployment rate reached 8.5% in the third quarter. This weakening in economic indicators, coupled with earlier cuts throughout the year, reflects a year-long strategy to ease monetary policy amid softened economic activity.
The previous rate cut, in September, was a smaller adjustment of 0.25 percentage points. By contrast, today’s rate drop, effective as of October 13, stands as a substantial shift, underscoring the Riksbank’s proactive stance in response to Sweden’s prolonged recovery.
While neighboring Norway chose to hold its policy rate steady at 4.5% on Thursday, Norges Bank Governor Ida Wolden Bache stated it would “most likely be kept” at this rate through year’s end. Norway has maintained a higher interest rate since December 2023, which has helped temper inflation within its economy, where the annual inflation rate was reported at 3% from September 2023 to September 2024.
Sweden, part of the EU but operating outside the euro currency, differs in its monetary policy from Norway, which remains independent of the EU. This distinct position allows each nation to adjust its policy tools independently, highlighting the varied responses among Nordic economies facing different inflationary pressures and recovery rates.
