Another Riksbank Rate Cut Looks Imminent
Punchline: The Riksbank is likely to cut interest rates to 2.0% on 18 June. If so, this would mark the seventh cut since May 2024, bringing the cumulative reduction to 200 basis points.
Sweden’s monetary policy outlook reflects a mixed picture: weak economic activity, inflation slightly above target but broadly benign, and a stronger krona. Taken together, these factors point to a likely interest rate cut by the Riksbank on 18 June.
Growth disappoints
The latest GDP data revealed that the Swedish economy shrank by 0.2% in the first quarter of 2025, reversing a 0.5% expansion in the previous quarter. This marked the first contraction since late 2023 and came as a surprise. It also undercut the Riksbank’s own projections, raising the likelihood of additional monetary easing to support what is increasingly looking like a fragile recovery. Other indicators of economic activity have remained subdued, reinforcing the view that the recovery is faltering.
Source: SCB
While the Riksbank has already lowered interest rates by 175 basis points since last May, this has yet to trigger a sustained recovery. Instead, Sweden remains increasingly exposed to external shocks—most notably the sharp escalation in US trade restrictions announced on “Liberation Day” on 2 April. As a small, open economy, Sweden is particularly vulnerable to global developments, and the shift in US policy is likely to dampen both external demand and domestic confidence in the months ahead.
Inflation pressure eases
Inflation has also surprised on the downside. While headline CPI inflation fell to 0.2% in May from 0.3% in April, this measure is mechanically affected by changes in the Riksbank’s policy rate and is not the target of monetary policy. Instead, the Riksbank targets the CPIF—headline inflation with a fixed interest rate—which remained at 2.3% in May for the third consecutive month. Importantly, this outcome was below market expectations.
The CPIF excluding energy (CPIFXE), a proxy for core inflation in Sweden, fell to 2.5% in May from 3.1% in April, partly due to a temporary tax effect that the Riksbank is likely to look through. Still, the recent trajectory of inflation suggests that price momentum has peaked—something the Riksbank is likely to interpret as evidence of a subdued medium-term outlook.
Sourde: SCB
Currency strength reinforces disinflation
Further contributing to the benign inflation outlook is the Swedish krona, which strengthened by 13% against the US dollar and 5% against the euro between January and May.
Source: Ekonomifakta.se
It is currently the best-performing currency in the G10, reflecting shifts in global risk sentiment triggered by the Trump administration’s broader economic policies. While a stronger krona helps to contain inflation, it also dampens export competitiveness and may weigh further on growth. The Riksbank is therefore likely to see the appreciation of the krona as reinforcing the case for lower interest rates.
Summing up
The economic case for further easing is becoming stronger. Activity remains subdued, inflation is easing, and the krona continues to appreciate—all against a backdrop of rising global uncertainty. While inflation may pick up temporarily during the summer due to base effects, this is expected to be short-lived and unlikely to alter the medium-term outlook or policy trajectory.
Markets are now pricing in a high probability of a rate cut at the Riksbank’s next meeting. With the recovery faltering and inflation risks diminishing, the central bank increasingly looks poised to act. Absent a major surprise, a rate cut on 18 June now appears more likely than not.