Riksbank – December 2024: 25bp cut but a hawkish signal

As expected, The Riksbank cut the policy rate by 25bp to 2.50%, but in terms of the outlook the message was hawkish in relation to our expectations and compared to market pricing. The Riksbank is signalling that it plans to cut once more during H1 25 (we expected 1-2 cuts in guidance) and looking at the rate path the probability seems rather evenly distributed between the January and March meetings. The end point of 2.25% in the rate path was unchanged compared to September and again higher than we envisaged at this point (2.10%).

Overall, the Riksbank forecast seems a bit on the optimistic side. As the economy remains weak (‘mild recession’), with a negative GDP gap that is not closed until 2027, inflation more or less at target and the forecast of international policy rates revised lower, it can be questioned if a more expansionary policy is not needed than a rate path ending up at the mid-point of their neutral rate assessment (1.5%-3.0%). In the Q&A, Governor Thedéen suggested that current policy actually may be expansionary already, at this point, a hawkish remark as we see it.

Especially, one can highlight the contrast between the MPR at this point compared to the November meeting, where the Riksbank seemed clearly more concerned about the growth recovery stalling, which motivated the larger 50bp cut (clearly on the dovish side to the September path). In this report, the notable change is an upward revision of near-term inflation, but a roughly unchanged picture of the economic recovery compared to the September forecast. Hence, there is seemingly a shift compared to November where the inflation outlook perhaps weighs more than growth concerns.

In our view, the risk picture to the Riksbank’s main scenario is clearly on the downside looking into 2025. That said, given the hawkish message from the Riksbank, we adjust our call upwards and now see two more cuts (March and June) from here down to 2.00% (1.75% previously) with a pause in January. The timing of these cuts is uncertain and while our own take would be that the Riksbank should continue to ‘front load’ cuts, the wording of ‘a more tentative approach’ and ‘carefully evaluate the need for future interest rate adjustments’ suggests that it seems ready to ‘skip’ the January meeting.

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