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The Central Bank Lowers the Policy Rate to 2.75%: What Does It Mean for Your Wallet?

On November 7, 2024, the Central Bank announced a 0.5 percentage point reduction in the policy rate to 2.75%. This is part of a series of cuts throughout the year as inflation has decreased and economic growth has remained weak. The new rate will be effective from November 13 and marks a significant change from October when the rate was at 3.25%.

How Does This Affect Mortgage Costs?

With the lowered policy rate, we can expect mortgage interest rates to decrease as well. Here is a calculation of how mortgage costs for different amounts may look with the new rate, including the bank's markup of 1%:

• 1 million kronor: With the new policy rate at 2.75% and a markup of 1%, the interest rate becomes 3.75%. This results in a monthly cost of approximately 3,125 kronor, excluding amortization.
• 3 million kronor: With the same interest rate of 3.75%, the monthly cost would be around 9,375 kronor, excluding amortization.
• 5 million kronor: With the same interest rate of 3.75%, the monthly cost would be about 15,625 kronor, excluding amortization.

It is important to remember that these costs do not include amortizations, which can affect the total monthly expense depending on the household's level of indebtedness.

Personal Loans and Other Interest Rates

For personal loans, which usually have a higher bank markup, we may now see rates around 5.25% (policy rate 2.75% + markup 2.5%). This could mean lower costs for those with existing loans or planning to take out new ones.

Future Outlook for Interest Rates

Considering the declining inflation - KPIF is now at 1.5% compared to 3.6% a year ago - there is room for further interest rate cuts in the coming months. The Central Bank has indicated that if the economic and inflation outlook remains stable, we can expect more cuts in December and during the first half of 2025.

Food, Fuel, and Energy Prices

The decreasing inflation may also impact prices of food, fuel, and energy. If inflation continues to decline, consumers can expect more stable prices, which could provide some relief to household finances.

Summary

The recent policy rate cut means lower costs for both mortgages and personal loans, which can offer some economic relief to households. With the declining inflation and weak economic conditions, more rate cuts may be on the way, further positively impacting the economy.