The Swedish Krona tumbled against the U.S. dollar in European morning deals on Thursday after Sweden's Central bank lowered the key repo rate by half a percentage point to combat deflation.

The Executive Board of the Riksbank cut the repo rate by 0.5 percentage points to 0.25 percent from 0.75 percent, effective July 9. The bank was forecast to slash the rate by 25 basis points.

The repo-rate path is revised downward substantially. Increases in the repo rate are not expected to begin until the end of 2015 and it is expected to be just over 2 percent at the end of 2017.

Policymakers assessed that the repo rate and the repo-rate path need to be even lower for inflation to rise towards the target. The low repo rate will contribute to higher demand in the economy as a whole, which will lead to inflation rising.

The Krona depreciated to 6.8759 against the dollar, its lowest since July 2013, and down by 2.6 percent from Wednesday's closing quote of 6.7045. The next possible downside target for the krona lies around the 6.90 level.

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