Swedish central bank cuts interest rate by 25 basis points amid weak economy

Sweden's central bank on Wednesday announced a 25-basis point cut of its benchmark interest rate to 3.75 percent amid weak economic activity.

This is the first rate cut in eight years. The Riksbank said the decision on the policy rate will apply from May 15.

The Riksbank's executive board said that if the outlook for inflation still holds, the policy rate is expected to be cut two more times in the second half of the year.

"It was expected. They cut the interest rate because inflation is sinking toward the target even faster than the Riksbank had predicted, and the economy is weak," said Alexander Noren, an economic commentator of Swedish Television (SVT).

"However, they will proceed carefully and not spring any surprises. I am totally convinced that there will be no shock cut as there was a shock rise," Noren added.

Statistics Sweden's figure shows that the country's inflation rate, the CPI, was 4.1 percent in March, down from 4.5 percent in February. The central bank said the outlook for inflation is still uncertain. Due to factors such as geopolitical tension and a weak Swedish krona, there are risks to cause inflation to rise again.

"We are in the midst of an economic winter, with weak growth and rising unemployment. The economic situation is challenging ..." said Sweden's Minister for Finance Elisabeth Svantesson in mid-April.

Since May 2022, the Riksbank had raised its policy rate several times from zero to 4 percent. Before this round of interest rate hikes, the policy rate in Sweden had been at zero or sub-zero for more than seven years.