woman shops 08 December 2007 at "Ekovaruhuset" a boutique
Stockholm - AFP
The Swedish central bank set a zero base interest rate on Tuesday, deciding to cut its key rate by a quarter of a percentage point in a drive to push up exceptionally low inflation.
This is a record low and the central bank said it would stay at this rate until inflation picks up.
Inflation was too low, the bank said in a statement, although the Swedish economy was doing relatively well and the overall climate was improving.
It expects inflation this year to turn out to be a negative 0.2 percent, pointing to slight deflation, but that next year it will rise to plus 0.4 percent.
The rate cut was steeper than analysts had expected. They had forecast a cut of 0.20 points.
The bank said that this new low rate should increase demand in the economy and that this in turn would help to push up prices and inflation.
In September, consumer prices fell by 0.4 percent, far below the central bank's target for inflation of 2.0 percent which has not been achieved since the beginning of 2012.
The latest inflation figure also showed a bigger drop than analysts had expected.
In seven of the first nine months of the year, inflation has been negative, meaning that prices fell.
This is against a broader background of deep concern in many European economies, notably in the eurozone, that there is a risk of deflation, a vicious cycle of falling prices, demand, and growth and rising unemployment, which central banks find extremely difficult to reverse.
Sweden is a member of the European Union but not of the eurozone and so retains control, via its central bank, of monetary policy and interest rates.
The central bank forecast that the unemployment rate would be 7.9 percent for this year, slightly down from 8.0 percent last year, and that next year the economy will grow by 2.7 percent and the unemployment rate will fall to 7.4 percent.