Swedens Policy Rate

The Central Bank lowers the policy rate to 3.5%: What does it mean for households?

On August 20, 2024, the Central Bank announced that the policy rate, also known as the repo rate, has been lowered from 3.75% to 3.5%. This marks a change after several months of unchanged rates. The decision comes in light of stabilizing inflation and is an attempt to further stimulate the economy.

Historical interest rates and inflation

To understand today's decision, it is important to look at the historical development of both interest rates and inflation:

• 2024-07-01: 3.75%
• 2024-06-01: 3.75%
• 2024-05-01: 3.75%
• 2024-04-01: 4%
• 2024-03-01: 4%
• 2024-02-01: 4%
• 2024-01-01: 4%
• 2023-12-01: 4%
• 2023-11-01: 4%
• 2023-10-01: 4%
• 2023-09-01: 4%
• 2023-08-01: 3.75%

Inflation figures (CPIF) have also shown a downward trend:

• 2024-07-01: 1.7%
• 2024-06-01: 1.3%
• 2024-05-01: 2.3%
• 2024-04-01: 2.3%
• 2024-03-01: 2.2%
• 2024-02-01: 2.5%
• 2024-01-01: 3.3%
• 2023-12-01: 2.3%
• 2023-11-01: 3.6%
• 2023-10-01: 4.2%
• 2023-09-01: 4%
• 2023-08-01: 4.7%

What does this mean for mortgage customers?

For households with mortgages, the lowered policy rate potentially means lower interest costs. Here is a calculation for mortgages of 1 million, 3 million, and 5 million SEK, assuming banks' markup is 1% (100 basis points):

Mortgage Calculation

• 1 million SEK: Interest 4.5% (3.5% + 1%) = 45,000 SEK/year or 3,750 SEK/month
• 3 million SEK: Interest 4.5% (3.5% + 1%) = 135,000 SEK/year or 11,250 SEK/month
• 5 million SEK: Interest 4.5% (3.5% + 1%) = 225,000 SEK/year or 18,750 SEK/month

It is important to note that these amounts do not include amortization, which can affect the total monthly cost depending on the household's level of indebtedness.

Personal Loans

For personal loans, where banks' markup is often higher (2.5% or 250 basis points), the interest rate would now be 6% (3.5% + 2.5%). This means higher costs compared to mortgages, but the reduction in the policy rate can still provide some relief.

Future Outlook

With a declining inflation curve, we can expect the Central Bank to continue with a cautious monetary policy. If inflation continues to decrease, further interest rate cuts may be possible. On the other hand, if inflation were to start rising again, a rate hike could be considered.

Food, Fuel, and Energy Prices

The price levels of food, fuel, and energy directly impact inflation. Stable or decreasing inflation can lead to more stable prices for these goods. However, if inflation rises, we can expect higher prices, which in turn can negatively affect households' purchasing power.

In summary, today's reduction in the policy rate provides some relief for households, especially those with mortgages. The future outlook depends greatly on the continued development of inflation and global economic conditions.