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Central bank slashes key interest rate

"The decision feels a bit odd"
4:02 min
Riksbankschefen Stefan Ingves. Foto: Jonas Ekströmer/TT.
The Central bank's governor Stefan Ingves. Photo: Jonas Ekströmer/TT Foto: Jonas Ekströmer/TT

Sweden's central bank announced Thursday that it will lower the already record-low benchmark interest rate.

The Riksbank first decided to lower the rate down into the negatives in February 2015, to negative 0.1 percent, and has since lowered it gradually in an attempt to stimulate consumption and raise the inflation rate. The key interest rate has remained steady at negative 0.35 percent since July last year, before being cut by another 0.15 percent today.

Andreas Wallström, chief analyst at Nordea markets, says that experts expected the central bank to cut the interest rate, but not by this much. 

"The Swedish economy is doing well. We have high growth and a good situation on the labour market, and at the same time the central bank decides to ease the monetary policy even further. It feels like an odd decision," Wallström says. 

Financial Times have called the decision the 'Swedish shock' and wrote ahead of the announcement that 'it pays to expect the unexpected' when it comes to Nordic central banks, and Wallström agrees that the Riksbank has a reputation for being unpredictable.

"They are certainly seen as unpredictable. They have been wrong in the past and have a poor track-record, so I think they feel a bit pressured to get things right now and restore our trust. It's not easy to be a central bank, people criticise you no matter what you do," Wallström says.

Last year, the inflation rate was 0.9 percent, still far from the Riksbank's target at 2 percent per year.

Stefan Ingves, the Central Bank's governor, said in a short statement Thursday morning that the central bank may lower the rate further if this measure is not effective enough.

The Swedish krona has already dropped 1 percent against the Euro, following this morning's announcement.

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