19 Dec 2024

The financial markets, along with a significant majority of economists, are currently predicting a reduction in the key interest rate by 25 basis points, bringing it down to 2.5%. This expectation is underpinned by a consensus that the likelihood of an unexpected outcome is quite low. As a result, the decision-making process will primarily depend on the Riksbank's outlook for the upcoming year. In this context, new economic forecasts and an updated interest rate trajectory are anticipated to provide crucial insights into the central bank's future policy direction. At present, market participants estimate that the terminal interest rate in Sweden will settle around 2%. If the Riksbank signals a more accommodative monetary policy stance, it is likely to lead to a short-term depreciation of the Swedish Krona (SEK), as investors adjust their expectations accordingly.

Following the Riksbank's meeting, the Norwegian central bank, Norges Bank, is scheduled to convene just half an hour later. However, it is widely expected that interest rates will remain unchanged during this meeting. The primary focus will shift to the central bank's outlook for the coming year, particularly regarding the timeline for when Norges Bank might consider implementing its first rate cut in this current cycle. Our projections continue to suggest that March is the most likely timeframe for such a move. Any alteration in the current communication from the central bank would be seen as poorly timed, especially given that inflation rates remain elevated and the overall economy is stable.

Lastly, the Bank of England is set to hold its monetary policy meeting. However, we do not anticipate any changes to the key interest rate, particularly as the year draws to a close. Despite recent inflation figures coming in slightly below analysts' expectations, the outlook for stronger fiscal stimulus in the upcoming year has led to heightened growth and inflation expectations. As a result, the central bank is expected to adopt a cautious approach during today's meeting, a stance that is likely to continue into the following year. This cautious approach is expected to provide support for the British pound against the euro as we move into 2025, reflecting the market's confidence in the UK's economic resilience amidst evolving fiscal policies.