2024-05-09 13:27:30
The Swedish central bank cut its benchmark interest rate for the first time in eight years. This is the second interest rate cut in a developed country following Switzerland, breaking the tradition of lowering interest rates after the U.S. Federal Reserve moves. Despite concerns about currency devaluation, Europe chose to stimulate the economy and turned to lower prices.
Sweden’s central bank, Riksbank, announced on the 8th (local time) that it had lowered its base interest rate by 0.25 percentage points from 4% to 3.75%. Erik Tedin, head of the Riksbank, explained the reason for the interest rate cut, saying, “We are fully confident that inflation has fallen in a sustainable way.”
Previously, Switzerland, the Czech Republic, and Hungary also lowered their interest rates, and the European Central Bank (ECB) also sent a signal to lower interest rates in June. According to the Wall Street Journal (WSJ), this is the first time in the 21st century that Europe first eased monetary policy without waiting for the Federal Reserve. While the Federal Reserve has yet to provide guidance on when to cut prices amid stubborn inflation, Europe has begun a pivot (policy change), believing that waiting any longer could result in a hard landing.
If the interest rate gap with the United States widens, funds will flow to the United States, and the value of the dollar will rise, increasing the likelihood that each country’s currency will fall. Sweden’s Governor Tedin also acknowledged that rising import inflation due to the further weakening of the domestic currency, geopolitical risks, and the continued strength of the U.S. economy could be factors in increasing domestic inflation in the future. Due to the Swedish central bank’s decision, the krona fell 0.4% against the dollar on this day. The Financial Times (FT) analyzed, “They are choosing to stimulate the economy even at the cost of devaluing their own currencies,” and “It shows that Europe is increasingly willing to take a different path from the United States.”
While the outlook for the timing of the U.S. rate cut fluctuates, central banks around the world are in trouble over whether to choose between the exchange rate and their own economies. The market, which had recently raised expectations of an interest rate cut in September due to a slowdown in U.S. employment slowdown indicators, is concerned about future uncertainty due to the hard-line stance of hawks within the Federal Reserve. Following Minneapolis Federal Reserve Bank President Neel Kashkari the day before, Boston Federal Reserve President Susan Collins also said, “Interest rates may remain higher than expected.”
According to the Chicago Mercantile Exchange’s FedWatch, which predicts the Federal Reserve’s policy path through interest rate futures investment, the market still estimates that the likelihood of interest rates falling by September is about 65%.
New York = Correspondent Kim Hyun-soo [email protected]
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2024-05-09 13:27:30