Sweden to Cut Key Interest Rate

The Swedish central bank Riksbanken announced its decision on Wednesday to cut the interest rate by one percentage point to 1 percent.

The reduction in interest rate is necessary to dampen the fall in production and employment and to attain the inflation target of 2 percent, the Riksbanken said in a statement.

The bank cut its key interest rate by a bigger-than-expected 1.75 percentage points to 2 percent in December.

The downturn in the economy now looks as if it will be even worse than was thought in December. Exports and export orders have fallen dramatically and the number of redundancy notices remains high, it said.

The economic prospects are unusually uncertain at the moment and it may take longer time before the financial markets function as they should, said the central bank, adding that the interest rate may need to be cut slightly more over the coming six months.

The Riksbanken also lowered its forecast for Sweden's 2009 gross domestic product (GDP) growth to a negative 1.6 percent from a negative 0.5 percent in December. It expected that the recovery for the Swedish economy would begin in 2010.