Swedish krona falls to four-year low as world's oldest central bank cuts interest rates to zero

Emma Haslett
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Sweden has been grappling with historically low inflation for several months (Source: Getty)

The Swedish krona hit a four-year low against the dollar this morning, after its central bank cut its benchmark repurchase, or repo, rate to 0 per cent, from 0.25 per cent - a larger cut than expected.

The krona fell as low as 0.1358 against the dollar in mid-morning trading, its lowest since August 2010.

The Riksbank, the world's oldest central bank, has been grappling with historically low inflation for months. CPIF, the measure of inflation watched most keenly by the bank, fell to 0.3 per cent in September, 0.4 percentage points below its most recent forecast.

Analysts had expected the bank to cut its main interest rate to 0.05 per cent, but in a statement it said that inflation was "too low". "The repo rate needs to remain at this level until inflation clearly picks up" - which is unlikely to happen until the middle of 2016.

Over recent months, the krona has steadily declined against the dollar (Source: Bloomberg)

In its statement this morning, the bank also cut its inflation forecasts for the next three years: CPI will fall to -0.2 per cent in 2014, before rising to 0.4 per cent in 2015 and 2.1 per cent in 2016, it said. Those figures are down from flat, 1.3 per cent and 2.9 per cent respectively.

It added:

The fact that the repo rate is now being lowered further to get inflation to rise will increase the risks associated with high household indebtedness. It is therefore even more urgent now that these risks are managed.

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