Riksbank cuts interest rates by surprise to curb strength in Krona

On Thursday Sweden´s central bank became the latest monetary authority to act in a bid to curb excessive strength in its currency and said it was ready to go further.

The Riksbank unexpectedly lowered its benchmark policy rate by ten basis points to -0.35%.

In parallel, it increased the size of its quantitative easing programme by 45bn Swedish krona and lowered its inflation forecasts for this year and the next.

The total size of the programme was boosted from SEK 80-90bn to SEK 125-135bn and will run until the end of the year instead of until September.

The monetary authority said the Krona had appreciated by more than had been expected, posing a risk to the recent upturn in inflation.

In reference to Greece, it said “in this uncertain environment, monetary policy needs to give more support to ensure that inflation continues to rise towards the target of 2%”.

The Riksbank also explicitly held out the possibility of currency market interventions and for interest rate reductions in between meetings.

Analysts at Capital Economics think the Riksbank will lower its benchmark policy rates further, to -0.5%, given that its "QE programme is still set to be less aggressive than that of the ECB, keeping the upward pressure on the krona."

That comes amid heightened speculation that the European Central Bank would be willing to step up its asset purchases should periphery markets begin to show signs of undue stress as events unfold in their Mediterranean neighbour.