Swedish Riksbank cuts rates to record low 0.25 pct
Swedish central bank cuts key interest rate by a quarter point to record low of 0.25 percent
By Malin Rising, Associated Press Writer
On Thursday July 2, 2009, 4:54 am EDT
Buzz up! 0 Print.STOCKHOLM (AP) -- Sweden's central bank on Thursday surprised markets by cutting its key interest rate by a quarter of a percentage point to 0.25 percent, saying the economic downturn appears to be deeper than previously forecast.
It added that low official interest rates might not be enough to make financial markets recover and decided to issue loans of 100 billion kronor ($13.1 billion) to banks.
"This should contribute to lower interest rates on loans to companies and households," the Riksbank said in a statement.
"Economic activity abroad is very weak and this hits Sweden hard. Exports have fallen substantially and the situation on the labor market is continuing to deteriorate rapidly," it added.
The rate cut startled analysts, who had expected the Riksbank to keep the rate at 0.5 percent.
"It is surprising, but on the other hand we and many others have pointed out the need for a zero interest rate for some time now," SEB analyst Tomas Lindstrom said.
He said a revised outlook for the rest of the world, and particularly for OECD countries and the euro zone, appeared to be the reason for the more pessimistic scenario.
"They were trailing behind in their analysis of the euro zone and I would think they have cut their outlook for Germany," he said.
The central bank said it now expects Swedish gross domestic product to decline by 5.4 percent in 2009 -- a sharper drop than its previous forecast of a 4.5 percent fall. However, it raised its outlook for 2010 GDP to a growth rate of 1.4 percent from 1.3 percent previously.
It said the economic outlook is still uncertain and that although GDP is expected to be positive in 2010, employment will not begin to rise until 2011.
The central bank said it expects to keep the key interest rate, also called the repo rate, at the current low level until the autumn of 2010.
Riksbank governor Stefan Ingves was in hospital for a routine checkup and didn't participate in the interest rate meeting, but the central bank said his condition wasn't serious.
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