Per Jansson: Inflation on firmer ground – a rate cut in the first half of the year is a possibility

“It is good news that inflationary pressures have continued to ease and this makes it possible to cut the policy rate earlier than we thought at our monetary policy meeting in November. But I find it difficult to imagine that it will be a direct journey without slowdowns and hold-ups. Each step in monetary policy must be carefully examined and considered.” These comments were made by Deputy Governor Per Jansson, when he spoke today about the Riksbank’s latest policy-rate decision at Nordea in London.

Date: 08/02/2024 09:00

Speaker: Deputy Governor Per Jansson

Place: Nordea, London

At 5.3 per cent, inflation excluding energy prices remains well above the inflation target. This underscores the need for monetary policy to remain contractionary for a while longer, Mr Jansson said. “But underlying inflation has fallen a little faster than expected in recent months. At the same time, economic developments have continued to cool, reducing the risk of inflation becoming entrenched at too high a level. This makes it possible to cut the rate earlier than we thought at our November meeting, perhaps even in the first half of the year.”

Although the current inflation picture looks good, Mr Jansson emphasised that there are risks that may lead to setbacks. “Global geopolitical tensions may create new supply disruptions or contribute to a problematic weakening of the krona. Should firms face new cost shocks in a situation where pricing behaviour has not yet normalised, the impact on inflation could be significant.” 

Against this background, Mr Jansson said that monetary policy needs to be characterised by caution. At this stage, he did not want to rule out the possibility of a rate cut as early as March, but did not consider it very likely. “For this to come into question, not only must the favourable development of inflation continue, but the plans for policy-rate cuts from the major central banks will probably also need to be outlined much more clearly. At the moment, I see it as clearly more realistic that the rate will be cut at the meeting in either May or June.”

In any event, Mr Jansson believed that the volatile situation in the global economy means that there will most likely be a need to make pauses in the rate cuts to await more information and allow uncertainty to dissipate. “Pursuing a well-balanced monetary policy in this way reduces the risk of having to turn full circle and increase the rate again.”

Updated 08/02/2024