Swedens Policy Rate

The Riksbank Lowers the Key Interest Rate to 2.25%: What Does It Mean for You?

The Riksbank has announced that the key interest rate will be lowered from 2.5% to 2.25% effective February 5, 2025. This decision marks the first decrease since November 2024, which may affect both households and businesses in Sweden.

The Background to the Decision

Over the past year, we have seen a gradual reduction of the key interest rate from a peak of 4% at the beginning of 2024. The latest reduction is a response to the declining inflation, with the CPIF falling to 1.5% in December 2024. This indicates a more stable price development, allowing the Riksbank to ease monetary policy.

Impact on Mortgage Costs

The lowered key interest rate may lead to lower interest costs for mortgages. With an assumed bank margin of 1%, the new mortgage rate could be around 3.25%.

• Mortgage 1 million: At 3.25% interest, monthly payment approximately 2,708 SEK.
• Mortgage 3 million: At 3.25% interest, monthly payment approximately 8,125 SEK.
• Mortgage 5 million: At 3.25% interest, monthly payment approximately 13,542 SEK.

It is important to note that these amounts are exclusive of amortization, which also affects the total cost for households depending on their level of indebtedness.

The Effect on Personal Loans

For personal loans, where banks' margins are estimated at 2.5%, the effective interest rate may now be around 4.75%. This represents a potential decrease from the previous 5% and could provide some relief for borrowers.

Future Outlook for Interest Rates and Prices

With the downward inflation trend, we can expect continued cautious monetary policy from the Riksbank. If inflation continues to remain low, further interest rate cuts may be considered throughout the year.

Forecast for Food, Fuel, and Energy Prices

Food prices, fuel prices, and energy prices have also stabilized somewhat with the declining inflation. If this trend continues, we may see stable or slightly decreasing prices ahead, providing households with a bit more economic relief.

Interaction with Inflation

The overall inflation, both CPI and CPIF, has shown a downward trend since the beginning of 2024. This has created conditions for a more flexible monetary policy, without risking overheating the economy.

Summary

The Riksbank's decision to lower the key interest rate to 2.25% is a welcome step for many households and businesses. With lower interest costs, more people may afford investments and consumption, which could contribute to a more stable economic growth in the future.