The governor of Sweden's central bank states that a forecast of two to three additional rate cuts in 2021 is not a definitive promise.

• The central bank of Sweden kept interest rates on Thursday but revised its outlook for additional cuts this year from two to "two or three."
• Erik Thedéen, Governor of the Riksbank, stated to CNBC that the inflation outlook was more optimistic, specifically regarding inflation expectations and wage growth. However, he emphasized that two to three cuts were only a forecast and not a guarantee.
• In May, the Riksbank was among the first major central banks to ease monetary policy by cutting interest rates by 25 basis points.

The Riksbank of Sweden may reduce interest rates by three more times in 2021, as cautioned by its governor, Erik Thedéen.

According to Thedéen, CNBC's Arabile Gumede, two or three cuts is a forecast, not a promise, and monetary policy will be adapted based on incoming information.

The Riksbank decided to keep its policy rate at 3.75% during its June meeting, following a 25 basis point reduction in May, making it one of the first major economies to adopt the latest monetary easing strategy.

At its May meeting, the forecast predicted only two cuts during the second half of the year.

"Our inflation forecast indicates a positive outlook, with our target already close at hand and our forecast predicting 2% inflation in the near future," Thedéen stated.

"We want to have more time before deciding to cut, as we experienced some backlash in May and there is uncertainty around the situation."

He stated that positive indicators include lower inflation expectations, softer price setting, and a more cooperative wage environment than what is currently observed in the euro area or Norway.

The primary risks include an increase in domestic price pressures due to strong demand, fluctuations in the Swedish krona, a global supply shock, or a rise in energy rates, as he stated.

To deliver more rate cuts, we don't need a super positive surprise, but rather data coming in in-line overall. However, not all the data will be exactly as our forecast, so the main message is that we need to have data coming in as expected.

In May, Sweden's headline inflation was 3.7%, slightly higher than the 3.5% predicted by economists in a Reuters poll.

The Riksbank announced that inflation excluding energy had fallen below 3% and that readings since fall had been lower than its own projections. Its latest forecast is for headline price rises to average 3.1% this year, with a sharp fall to 1.3% in 2025.

The central bank takes into account the consumer price index with a fixed interest rate, known as CPIF, which does not factor in the impact of fluctuating mortgage rates. This year, it is estimated to be at 2%, and next year it is projected to be at 1.8%.

The Swedish economy is expected to grow from a 0.2% contraction in 2023 to 1.1% growth in 2024, surpassing its previous forecast of 0.3%, and then achieve 1.7% growth in 2025.

James Smith, an economist at ING, stated in a Thursday note that the Riksbank's new statement is more dovish than before. This is a shift from the beginning of the recent hiking cycle, when the Riksbank was eager to tighten policy more quickly and aggressively than the European Central Bank.

Smith stated that Sweden's economy, which is more sensitive to interest rate changes, is facing increasing pressure, allowing the Riksbank to more confidently ease monetary policy at a time when the ECB is becoming more cautious again.

At its June meeting, the ECB cut its key rate by 25 basis points to 3.75%, but policymakers have been less forthcoming about their plans for the future. According to LSEG data, money market pricing suggests that there may be two more 25 basis point cuts before the end of the year.

Smith stated that Swedish officials are emphasizing the low inflation expectations, which should result in more moderate wage negotiations during the upcoming talks in early 2025.