Sweden's central bank seen cutting rates to just above zero

STOCKHOLM: Sweden's central bank is expected to cut interest rates next week to a record low just above zero to fight stubbornly low inflation, a Reuters poll showed on Friday.

Of the 13 analysts contributing to the poll, six saw a cut in the bank's main interest rate, the repo rate, to 0.05 percent from 0.25 percent next Tuesday, four expected a cut to 0.10 percent and two said they expected an easing to 0.15 percent. Only one forecast no change in rates.

Underlying inflation has been below the Riksbank's 2 percent target for more than three years now, and headline consumer prices have fallen or been flat in nine of the last 12 months.

In the neighbouring euro zone, the European Central Bank has already cut rates to near zero and begun considering other measures to help revive inflation.

When September data showed Swedish consumer prices fell 0.4 percent - clearly lower than the central bank's forecast - most analysts revised their forecasts to predict one final rate cut this month.

Peter Bojsen Jakobsen, economist at Denmark's Sydbank, said he expected the Riksbank to cut the repo rate to 0.10 percent.

"That is mainly due to the low inflation of course, but also due to the fact that the ECB might ease monetary policy even further," he said.

Looser monetary policy in the euro zone, which is Sweden's most important trading partner, generally spells a stronger Swedish crown versus the euro, adding to the downward pressure on inflation.

In addition to an anticipated rate cut, the Riksbank is also seen pushing its forecast for future hikes further out from the end of 2015, when it currently expects to start raising rates.

While it is not seen taking measures other than a rate cut on Tuesday, some analysts say that can't be ruled out next year.

The Riksbank could then for example lend banks money at a low fixed interest rate, purchase assets or make currency interventions.

"They might feel the need to do more just in order to keep up with what the ECB is doing," said Jessica Hinds at Capital Economics in London.