The Riksbank’s press release after its Executive Board meeting in September highlighted that inflation pressures had fallen substantially and had become compatible with inflation around the 2% inflation target.1 The release also stated that if the outlook for inflation and economic activity remained unchanged, interest rates may be cut at the November and December meetings. Indeed, it noted that one of these rate cuts could be 50 basis points.
The Executive Board assesses the balance of risk to inflation and economic activity as being skewed to the downside and highlighted that it was therefore important that activity strengthened for inflation to stabilise close to the 2% target. Thus, an expansionary policy was called for.
The reason the Riksbank has turned so dovish is that with plenty of debt at variable interest rates, the economy has been hard hit by the prior tightening of monetary policy to combat high inflation. As a result, consumer price index (CPI) inflation in Sweden has fallen to 1.6% year-on-year (YoY), with CPIF inflation at 1.1% YoY and CPIF ex-energy inflation at 2.0% YoY in September (see Chart 1).2 These are low inflation rates from an international perspective.
