Sweden slashes interest rate to new record low

Sweden slashes interest rate to new record low
Sweden has had negative interest rates since last year. Photo: Fredrik Sandberg/TT
Sweden's central bank (the Riksbank) has cut the country's already historically low interest rate even further.

On Thursday the Riksbank announced that it was lowering its key rate, the repo, by 0.15 percentage points from -0.35 percent to -0.50.

It said that the reason for the move was continuing low inflation.

“The economy continues to strengthen but inflation is expected to be lower during 2016 than previously forecast. The period of low inflation will therefore be longer,” it said in a press statement.

It is almost a year ago to the day since Sweden's Riksbank lowered the interest rate to negative levels, the first time in the country's history.

Thursday's move was not entirely unexpected, with several experts predicting the cut ahead of the announcement. And the bank would not rule out lowering the repo even further in future if needed.

“The Executive Board (…) still has a high level of preparedness to make monetary policy even more expansionary, even between the ordinary monetary policy meetings,” it said.

It also said that purchases of government bonds would continue for the first six months of the year, in accordance with a plan adopted in October.

Sweden's bond buying programme is a form of quantitive easing, which involves borrowing money to inject back into the economy. 

The idea behind the negative rate is to try to boost inflation in order to raise the price of everyday goods and services in Sweden which have been stagnant for the past couple of years. It is argued that this in turn will improve economic prospects and help the country meet its inflation target of two percent by 2017.

The Swedish krona dropped sharply by around 0.10 kronor against both the dollar and the euro immediately after the announcement, making one dollar worth 8.47 kronor and a euro 9.61 kronor.

For Swedes and foreigners living in Sweden drawing a salary in kronor, a weak krona means that your money won't go as far if you visit the US or other European countries, but if you invite friends from those places to visit Sweden it won't seem so expensive for them and their holiday money will go further.