Key Takeaways
- The Riksbank is approaching the end of its interest rate cutting cycle.
- Most analysts expect another rate cut this year.
- The unexpectedly high inflation this summer is considered temporary.
Following the Riksbank’s decision to hold its key interest rate at 2.00% in August, only three meetings remain in 2025. The next interest rate announcement is expected on Tuesday, Sept. 23. Most monetary policy analysts agree that the Riksbank is nearing the end of its rate-cutting cycle, but the market is divided on whether there will be further cuts this year - and how quickly they will come.
Market pricing indicates a rate that is only 6 basis points lower in September, implying no cut at the Riksbank’s next meeting. According to Riksbank Governor Erik Thedéen, the market is unusually divided ahead of the interest rate announcement in September.
“I think this is the first time since I became Governor of the Riksbank that the market has been so divided. It reflects that it is a difficult decision, with many factors pointing in different directions”, said the Riksbank Governor in an interview with Dagens Industri.
Higher Inflation but Lower Growth in Swedish Economy
The unexpectedly high core inflation during the summer, which was mainly driven by rising services prices, has held back expectations of further interest rate cuts. Service inflation has since moderated but remains high, while core inflation in 2025 has been kept up by high food prices and the basket effect from changes in the weights of the CPI basket.
“Looking ahead, however, pressure from food prices is expected to ease, and base effects will contribute to a clear decline in January. In addition, retailers’ pricing plans fell significantly in the National Institute of Economic Research’s August barometer, which should reassure the Executive Board”, says Amanda Sundström and Olle Holmgren, strategists at SEB.
The subdued growth and weak labor market outweigh the temporarily higher inflation during the summer, according to SEB’s strategists. The interest rate path from June already signaled a 50% probability of a cut in the second half of 2025.
“The Swedish economy is limping,” note Andreas Wallström, Jesper Hansson, and Glenn Nielsen, analysts at Swedbank. They point out that the economic development during the summer has generally been worse than the Riksbank anticipated in its latest forecast, creating an opening for interest rate cuts during the fall.
The economic outlook has improved though, according to Torbjörn Isaksson, Chief Analyst Nordea. “The Swedish economy has resumed its recovery after the dip early in the year. In addition, fiscal policy will provide an extra boost next year, especially to household consumption.”
What Are Swedish Banks Forecasting for the Riksbank’s Next Move?
The Riksbank cut the policy rate twice in 2025, which now stands at 2.0%. This means that the policy rate has been halved from its peak in spring 2024. At its most recent meeting in August, the Riksbank assessed the unexpectedly high inflation during the summer as temporary, while pointing out that the economy remains weak. The Riksbank announced that it still sees “some probability of a further interest rate cut this year.”
However, it is not clear whether the Riksbank will cut the policy rate at the next interest rate decision on Sept. 23, and the forecasts from the major Swedish banks vary.
With inflationary pressures easing and unemployment rising, Handelsbanken and SEB are sticking to their forecasts of a further interest rate cut by the Riksbank at its September meeting. This would bring the key interest rate to 1.75%. SEB also predicts that the Riksbank will signal a slight possibility of another cut until mid-2026 and points out that even though core inflation remains at slightly elevated levels, several factors indicate that price increases are slowing down.
“This supports both our and the Riksbank’s assessment that the rise in inflation this summer was mainly driven by temporary factors. At the same time, growth is improving very gradually at best, and the labor market remains weak. Fiscal policy looks set to be more expansionary than the Riksbank had anticipated, which will strengthen growth in 2026,” SEB’s Sundström and Holmgren say.
Two More Interest Rate Cuts or None at All?
Swedbank takes it one step further and are forecasting rate cuts at both the September and November meetings, bringing the policy rate to 1.50%: “Autumn inflation is closer to the Riksbank’s target and should not be an obstacle to further interest rate cuts. However, persistent inflation or a clear improvement in the real economy in the near term could lead to fewer or no interest rate cuts.”
Nordea, on the other hand, stands out among the major banks and believes that the Riksbank has delivered its last interest rate cut in this cycle. The bank points out that the strengthening of the economy will become increasingly clear, gradually closing the door on rate cuts.
“Like other central banks, the Riksbank disregards short-term fluctuations in inflation caused by, for example, the reduction in food VAT. In other words, we stick to our view that the Riksbank is done cutting rates”, says Nordea’s Iaksson.
When Are the Next Interest Rate Decisions for Sweden’s Riksbank?
Only three Riksbank meetings remain in 2025. The interest rate decisions will be announced on the following dates:
Sep. 23.
Nov. 5.
Dec. 18.
