UPDATE 2-May rate cut possible but Sweden's Riksbank frets over crown, minutes show

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Riksbank held rates unchanged at 4.00% on March 27

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Flagged first rate cut in May or June

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Sees three cuts this year

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Analysts see first cut in May

(Adds analyst comment, currency reaction)

By Simon Johnson

STOCKHOLM, April 4 (Reuters) - Sweden's central bank may be able to cut its key interest rate in May if inflation continues to ease and the crown currency doesn't weaken too much, minutes of the most policy recent meeting, published on Thursday, showed.

After eight hikes in two years, inflation - which surged to over 10% late in 2022 - has slowed to within touching distance of the central bank's 2% target.

Growth in much of the economy has ground to a halt and many household are struggling with soaring interest payments. The construction and the commercial real estate sectors have been particularly badly hit.

On March 27, Riksbank kept its key interest rate unchanged at 4.00%, but said there was a strong chance it could start cutting rates next month.

"My assessment at present is that there is some probability of a cut in May, on condition that inflation prospects, including the development of the krona, do not deteriorate significantly," Governor Erik Thedeen said in the minutes.

The Swedish crown, or krona, has eased around 3.5% against the euro this year and lost further ground after the Riksbank's most recent rate announcement. It was marginally weaker after the minutes were published.

A weaker crown pushes up import prices making it more difficult for the central bank to keep inflation under control.

"A SEK at today's level will not stop rate cuts," Nordea economist Torbjorn Isaksson said. "We expect the Riksbank to cut rates in May and see a policy rate at 2.50% year-end 2024.

Worries about the currency, concerns of sparking a consumer boom and a desire to keep in line with the European Central Bank could mean that rates will come down relatively slowly, however.

"Cautious and gradual cuts in the policy rate in line with the interest-rate path would give us time to regularly evaluate how our measures affect economic activity and inflation prospects," Thedeen said.

The Riksbank's rate path points to three rate cuts in total this year from six remaining policy meetings.

The next policy decision will be announced on May 8.

(Reporting by Niklas Pollard, Terje Solsvik, Anna Ringstrom, Johan Ahlander, Simon Johnson; editing by Niklas Pollard and Christina Fincher)