Mixed signals from Scandinavian central banks

Summary

• Central banks in Norway and Sweden offered mixed signals from their early May monetary policy announcements. Norway's central bank delivered a “hawkish hold”, while Sweden's central bank cut rates with an accompanying statement that was overall dovish in tone.

• Norway's central bank—the Norges Bank—held its policy rate steady at 4.50%, and cited upside risks to inflation, including high wage growth and a weak currency. Of particular note, the Norges Bank also said recent economic data may necessitate monetary policy remaining tight for longer than previously envisaged. Given recent data and the central bank's guidance, we have pushed back our forecast timing for an initial 25 bps Norges Bank rate cut to September, from August previously. Beyond September, we expect the Norges Bank to lower interest rates at a 25 bps per quarter pace, which would see the policy rate fall to 3.25% by the second half of next year.

• In contrast, Sweden's central bank—the Riksbank—took a dovish direction at its early May announcement. The Riksbank cut its policy rate 25 bps to 3.75%, while noting inflation that has continued to approach target and weak economic growth. Officials also indicated the policy rate could be lowered two more times in the second half of 2024. While we agree the Riksbank will proceed cautiously for now with just one 25 bps rate cut in Q3, we forecast two 25 bps rate cuts in Q4 as Swedish inflation converges closer to target, and as the European Central Bank potentially accelerates the pace of its monetary easing as well.

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