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Swedish Riksbank cuts interest rate by 1 point

SWEDEN'S central bank surprised the market today by cutting its key interest rate a full percentage point to 1 percent to offset a plunge in production and employment triggered by the global financial meltdown.

The Riksbank also warned of more trouble in 2009, saying the economic downturn "now looks as if it will be even worse than was thought in December."

"The economic prospects are unusually uncertain at the moment," it said.

Exports and orders have fallen substantially, it said, and job losses continue to stay at a high level. The lower oil price has also led to a lower inflation rate, it said, a development that gives central bankers a freer hand to cut rates without worrying about worsening inflation.

Nordea chief economist Annika Winsth said the cut was more aggressive than expected, but that the Riksbank is reacting to the same bad numbers economists are currently forecasting.

"But it was a little bit more than thought, and so that's why it's a little chaotic at the moment," she said. "But I think they're going to cut it by 0.5 percentage points in April, and so this is still not the end of it."

The rate cut follows December's record slashing of 1.75 percentage points, the largest ever since the Riksbank started using the repo rate as its key interest rate in June 1994.


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