« Inflation is close to the target (2%, editor’s note) “. This is the encouraging announcement made by the Bank of Sweden this Thursday. If the latter decided to keep its key rate unchanged at 3.75% in June, the easing dynamic of its monetary policy is well underway. The central bank lowered its rate in May for the first time in eight years, thanks to a clear slowdown in inflation and it repeated this Thursday that “ monetary policy must be adjusted gradually ».
Above all, the central bank explained that “ if the inflation outlook remains unchanged, the key rate could be reduced two or three times during the second half of the year. »
However, in May, the Bank of Sweden mentioned only two possible rate cuts by the end of the year.
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Inflation almost back to 2%
According to economists, the Bank of Sweden’s comments are more dovish than previously. They thus suggest an acceleration in the fall in rates. “ As expected, the Bank of Sweden paused in June, after starting its interest rate reduction cycle at the previous meeting in May », Note the Swedbank economists.
The speech of the Bank of Sweden “ paves way for rate cut in August », they add.
At the origin of this enthusiastic communication: inflation adjusted for the evolution of real estate loan rates (CPIF), the Riksbank’s reference indicator, reached +2.3% over one year in May, a rate close to its objective of 2%.
« The evolution of inflation has been favorable since the end of last year », underlines the central bank which notes that inflation excluding energy prices has fallen to 3% although with a slight rebound recently.
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The ECB is planning two rate cuts in 2024
Just like its Nordic counterpart, the European Central Bank has just started its cycle of rate cuts. They have gone from a range between 4% and 4.75% to a range between 3.75% and 4.5% at its June 6 meeting.
« Based on an updated assessment of the inflation outlook, underlying inflation dynamics and the strength of monetary policy transmission, it is now appropriate to moderate the degree of monetary policy tightness after nine months of maintaining stable rates », had notably justified the president of the institution Christine Lagarde.
And for good reason,he rise in prices, which the ECB wants at all costs to see return to 2%, stood at 2.6% over one year in May, down sharply compared to its record of 10.6% reached in October 2022 . Strengthened by this observation, while she still estimated, during her conference at the beginning of March, that “we are not confident enough” as for reaching the target in the long term, she finally admitted on March 20 that she could “not be able to wait until you have all the relevant information ». « By doing so, we risk adjusting our policy too late. “, she added.
At the beginning of March, while the Frankfurt institution lowered its inflation forecasts to 2.3% in 2024 in the euro zone, against 2.7% previously anticipated, then by 2.0% in 2025, it also downgraded its growth prospects. Thus, gross domestic product (GDP) in the euro zone should, according to the central bank, increase by 0.6% in 2024, compared to 0.8% forecast in December.
For comparison, American growth should remain at 2.1% in 2024 according to the American Federal Reserve. “ The economy remains fragile », noted Christine Lagarde during the April meeting. In June, however, the latter warned that “we will maintain sufficiently restrictive key rates for as long as necessary to achieve this objective (of 2%, editor’s note)”.
The Fed is playing for time
Conversely, across the Atlantic, the situation is quite different and the first rate cut is still far away. On June 13, the president of the monetary institution, Jerome Powell, warned that interest rates will remain at this high level “as long as necessary”, and “the economy remains strong and inflation persists”. He warned that it would take several months of falling inflation for the rate cut to begin. And notably estimated that the rise in wages, which is good news for Americans’ wallets, remains too high to allow a return of inflation to an acceptable level.
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The Monetary Policy Committee (FOMC), in its press release, reported “modest further progress” towards its 2% inflation objective. After a rebound at the start of the year, the general rise in prices has only started to fall again in the last two months. She experienced a slight improvement in May, with a slowdown to +3.3% over one year, compared to +3.4% in April, and even stable prices over one month, according to the CPI index published at the beginning of June.
If this good news was not enough to convince the Fed to initiate the rate cut, it did, however, convince market players, who were oscillating between September and November for a first rate cut, that this This would happen at the end of summer, according to CME Group’s assessment.
(With AFP)
