Central Banks Adapt to Changing Economic Landscape: Riksbank Cuts Rate, ECB Anticipates Lower Rates

According to the latest information provided, several central banks have recently adjusted their monetary policies in response to changing economic conditions. In Sweden, the Riksbank cut its policy rate by a quarter point to 3.75% and indicated that it could make two additional cuts in the second half of the year. This follows a string of releases indicating that price increases in Sweden are moderating at a faster pace than expected. However, officials warned that while inflation may fall below the target in individual months, this would not necessarily determine the direction of monetary policy if it is clear that inflation is heading towards the medium-term target. Officials also highlighted the weakness of the Swedish krona as an upside risk to prices, as the currency has weakened around 5% this year and could lead to higher import costs and threaten to raise inflation rates again. Elsewhere, the European Central Bank (ECB) is expected to lower rates in June, with inflation close to its 2% target and growth tepid. In Norway, policymakers face the challenge of a weakening krone, despite slowing inflation. Meanwhile, in Australia, economists suggest that interest rates may stay elevated for longer due to budget forecasts indicating that inflation will fall back within the 2-3% target by the end of the year. In Poland and Romania, GDP figures are due for release in the coming week, while in Sweden, inflation readings will be published alongside minutes from the Riksbank’s last meeting. Finally, officials from the Riksbank have discussed the potential benefits of inflation falling below the target, particularly after a long period of high inflation and a strong sense of responsibility in wage formation.