Thursday, the Swedish central bank slashed its key interest rate by a massive 1.75 percentage point after the economy entered recession. This was the largest reduction since 1992. The Executive Board reduced the repo rate to 2% from 3.75%. Economists had predicted 100 basis points cut. The decision will apply from December 10. The repo rate is expected to remain at this level over the coming year, the central bank stated.
The Riksbank said, "A large reduction in the interest rate and the interest rate path is necessary to dampen the fall in production and employment and to attain the inflation target of 2%." Further, the bank said "fact that the interest rate needs to be cut substantially was also due to monetary policy not having such a large impact recently as it normally does."
Earlier, Deputy Governor Lars Nyberg said the financial crisis aggravates the ongoing economic downturn resulting in weaker growth, deterioration in the labor market and lower inflation. Therefore, the repo rate needs to be cut by a relatively large amount during a short period of time.
The central bank had brought forward its two day Executive Board Meeting to December 3 from December 16. This decision meant that there will be no monetary policy meeting on December 16.
The Riksbank will publish the minutes of the Executive Board meeting on December 17.
On October 22, the Executive Board of the Riksbank had unanimously decided to reduce the repo rate by 0.5 percentage points to 3.75% to alleviate the impact of the financial crisis on the real economy.
The Executive Board assessed rapid and clear deterioration in economic activity and expects it to weaken further over the coming period. The Swedish economy had contracted 0.1% sequentially in the third and second quarters of the year 2008.
The central bank now expects the economy to shrink 0.5% in 2009, following a 0.9% expansion in 2008. The weak developments in the global real economy led to fall in oil and other commodity prices, which has reduced cost pressures.
Annual inflation had eased to 4% in October from 4.4% in September. The central bank expects inflation to fall to 1.5% in 2009 from an estimated 1.9% this year. Thus, inflation forecast for this year and 2009 was lowered from 3% and 1.6%, respectively.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.