Sweden Cuts Interest Rate to Zero; Krona Falls After Riksbank Moves to Boost Inflation
STOCKHOLM--Sweden's central bank cut its main interest rate to zero after similar attempts to boost inflation by central banks in the U.S., Japan and other parts of Europe, prompting the Swedish krona to sink to a four-year low against the euro and dollar.</br></br>The surprise move by the Riksbank on Tuesday underscores the challenge for smaller neighbors of the eurozone in grappling with weak inflation. The European Central Bank's moves to bolster anemic prices in the currency bloc have caused currencies such as the krona to strengthen against the euro, which in turn, has weighed on import prices in Sweden and elsewhere in the region.</br></br>With interest rates now at zero, some analysts think the Riksbank may eventually have to opt for more aggressive monetary policy tools--including a Swiss-style currency floor--to weaken the krona and bolster price growth.</br></br>The Riksbank lowered its main repurchase, or repo, rate from the previous level of 0.25%. The cut was larger than expected, with analysts polled by The Wall Street Journal forecasting a reduction to 0.05%.</br></br>Sweden last cut borrowing costs in July in a bid to boost inflation, which has been stuck around zero for most of this year--well below the 2% inflation target set for the central bank by lawmakers.