EURCHF Euro vs Swiss Franc

Sweden's central bank cuts its key interest rates deeper into negative zone on Thursday in another attempt to bring krona down and push inflation to the 2 percent target.

The bank also signaled that it was willing to take rates lower from the current negative levels, among other steps such as an extension of government bond purchases and foreign exchange market interventions if the krona appreciates quickly.

The Executive Board of the Riksbank unexpectedly decided to cut the repo rate by 0.15 percentage points to -0.50 percent, on Thursday.

The bank was expected to keep its rate unchanged at -0.35 percent. The bank last lowered the repo in July, when it cut the rate from -0.25 percent.

The period of low inflation will be longer than expected earlier and any upturn in price growth will be uneven, the bank said.

Purchases of government bonds will continue for the first six months of this year as planned and it will reinvest maturities and coupons from the government bond portfolio until further notice.

The bank said there is still scope to cut the repo rate further. "The Riksbank is also analyzing whether it is possible within the operational monetary policy framework to implement other measures to underpin repo rate cuts," the bank said.

The bank also expressed its willingness to extend security purchases by buying nominal and real government bonds and to intervene on the foreign exchange market if the krona appreciates so quickly as to threaten the upturn in inflation.

In an extra session in January, the board awarded Governor Stefan Ingves, and the First Deputy Governor Kerstin af Jochnick, powers to "instantly intervene" on the foreign exchange market when necessary.

The Riksbank is still likely to need to take further action as there is little sign that inflation will pick up any time soon, Jessica Hinds at Capital Economics, said.

Swedish monetary policy should relate to several other central banks' expansionary monetary policy. Otherwise, the krona exchange rate would be at risk of strengthening at a faster rate than forecast, which would make it harder to push up inflation, the bank noted.

The bank lowered its inflation forecast for 2016 to 0.7 percent from 1.3 percent and that for next year to 2.1 percent from 2.5 percent.

Riksbank also trimmed its growth forecasts for 2016 and 2017 by 0.1 percentage point. The growth is expected to be 3.5 percent in this year and 2.8 percent next year.

As the economy continues to expand and house prices keep rising, there is widespread concern that expansionary measures would cause a bubble.

At the meeting, Governor Ingves and three others favored a rate cut, while Martin Floden and Henry Ohlsson voted against the move.

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