Sweden’s Riksbank cuts policy rate by 25 bps, SEK retreats

The Swedish Krona weakened sharply against the Euro on Wednesday, after Riksbank cut its benchmark policy rate by 25 basis points to 3.75% at its May policy meeting, in line with market consensus.

It has been the first rate cut since 2016, which followed the tightening cycle that began two years ago.

With CPI inflation nearing the central bank’s target and economic activity being subdued, Riksbank said it expected to reduce the policy rate two more times during the second half of 2024.

Yet, the central bank noted that the inflation outlook was uncertain and risks that may cause inflation in the country to accelerate again were mostly related to the resilient US economy, geopolitical tensions and the exchange rate of the Krona.

Riksbank also said that monetary policy adjustments in the future should be characterized by caution, with gradual cuts to borrowing costs.

The Swedish Krona was 0.74% weaker on the day against the Euro, with the EUR/SEK currency pair last trading at 11.7529.

The exotic Forex pair touched a fresh one-week high of 11.7552 immediately after the policy decision.