Sweden just cut its interest rates to negative and announced a bond-buying scheme

Emma Haslett
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The bank cut its repo rate to zero as recently as September (Source: Getty)

The Swedish krona plunged 1.73 per cent to its lowest against the dollar in five years today, after the Riksbank - the world's oldest central bank - cut its key interest rate to -0.1 per cent.

The cut, from 0.25 per cent, is an effort to combat a deflationary spiral in the country. Sweden's inflation figure currently stands at -0.3 per cent.

In September, the bank cut its benchmark repo rate to zero, from 0.25 per cent.

The bank also became the latest to jump on the bond-buying bandwagon, saying it plans to launch a government bond buying scheme, with a first tranche of 10 billion krona (£787m) expected to begin "soon".

It also hinted it will react fast to deflationary pressures, saying: "The Riksbank is prepared to quickly make monetary policy more expansionary, even between the ordinary monetary policy meetings, should the need arise."

Jameel Ahmad, chief market analyst at FXTM, said the move was a reminder that the effects of weakness in the Eurozone have begun to affect its trading partners.

The Riksbank easing monetary policy illustrates that the Eurozone is not the only economy stuck in a deflation battle. Some could also look at the easing of monetary policy extending beyond deflation fears but also maintaining the Swedish krona at a weak level to compete with the continuous pressure the euro is facing.

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