Sweden lowers key interest rate, sees more cuts this year
Riksbank cuts policy rate as expected to 3.50% from 3.75%
Says inflation risks have diminished, could speed up rate cuts
Adds additional analyst, central bank comment, currency reaction
By Simon Johnson
STOCKHOLM, Aug 20 (Reuters) -Sweden's central bank lowered its key interest rate to 3.50% from 3.75% on Tuesday, as expected, and said it could speed up policy easing if price pressures do not pick up, holding out the possibility of up to three more cuts before year end.
After peaking at over 10% in 2022, the pace of inflation in Sweden has dropped rapidly and the central bank lowered its key rate for the first time in around eight years in May.
Since then, inflation has continued to ease, undershooting the central bank's 2% target for two months in a row. The economy slowed in the second quarter.
"If the inflation outlook remains the same, the policy rate can be cut two or three more times this year, which is somewhat faster than the Executive Board assessed in June," the central bank said in a statement.
Analysts had unanimously predicted a cut of a quarter percentage point.
With inflation tame, the economy sluggish and rate cuts likely from both the U.S. Federal Reserve and the European Central Bank in the coming months, analysts said there was little reason for the Riksbank to hold off from normalising policy. 0#FF:
"We change our forecast and now expect the Riksbank to cut rates at every remaining meeting this year," Swedbank, which had previously forecast two more cuts, said in a note.
The Swedish crown weakened immediately after the rate announcement but recovered to stand 0.3% higher against the euro at 0830 GMT. EURSEK=
The Riksbank left its key rate unchanged at 3.75% at its previous meeting, in June, but said then that it could make up to three more cuts before the end of the year.
The inflation picture has since brightened while the economic outlook is bleaker.
"The risk of inflation becoming too high again has declined significantly," the Riksbank said in its statement.
"Moreover, new information since the Monetary Policy Report in June indicates that the growth outlook in Sweden and abroad is somewhat weaker than in the most recently published forecast."
The Swedish central bank has three more meetings this year - in September, November and December.
Swedish rates and inflation: http://tmsnrt.rs/1qEN4Rz
Swedish economy: http://tmsnrt.rs/2bylYpf
Reporting by Simon Johnson, Niklas Pollard, Terje Solsvik and Johan Ahlander; editing by Niklas Pollard and Christina Fincher
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