Sweden’s Riksbank lowers key interest rate to 3.5 percent amidst declining inflation

On Tuesday, Sweden’s central bank, the Riksbank, lowered the key interest rate to 3.5 percent, indicating the possibility of three additional cuts this year. This decision follows a decline in inflation, which is now below the target of two percent. Riksbank Governor Erik Thedéen expressed increased confidence that inflation is aligning with this target, though he cautioned that circumstances could change swiftly due to geopolitical factors, fluctuations in oil and gas prices, and how businesses respond when the economy begins to recover.

Torbjörn Hållö, chief economist at the Swedish Trade Union Confederation (LO), criticized the Riksbank’s actions, arguing that the interest rate has been overly harsh on the Swedish job market. He advocated for a more aggressive cut in rates, suggesting that the Riksbank should maintain a lower interest rate significantly below the European average. Currently, there is only a 0.25 percent difference between Sweden’s rate and the European one, which he believes is insufficient given Sweden’s distinct economic structure.

The ongoing debate surrounding the interest rate adjustments reflects contrasting views on economic stability and job security, highlighting the complexities of monetary policy in an evolving economic landscape.