Sweden's central bank cut its benchmark repurchase rate by a further 25 basis points to zero percent and expects to keep the rate at this level until mid-2016 when it plans to start raising the rate to reach 1.75 percent by the end of 2017 when inflation finally reaches the bank's target.
The Riksbank, which has now cut its rate by 75 basis points this year, also cut its deposit rate to minus 0.75 percent and the lending rate to 0.75 percent while the rate for fine-tuning monetary transactions was set to zero.
"The low repo rate increases demand in the economy, which contributes to higher inflationary pressures," the Riksbank said, adding:
"The highly-expansionary monetary policy many also contribute to keeping inflation expectations anchored around 2 percent by sending a clear signal that monetary policy is focused on inflation approached the inflation target."
The central bank underscored that it planned to retain the interest rate at this unusually low level to boost inflation at a time that economic activity was relatively strong and continuing to improve.
The Riksbank, which has faced heavy criticism for being slow to cut interest rates in the face of underlying inflation that has been below its target for more than three years, warned that such an extraordinary low rate would increase the risks that households take on more debt and appealed to authorities to take action to manage these risk and reform the housing market.
Sweden's headline inflation rate fell to minus 0.4 percent in September from minus 0.2 percent in August, despite lower unemployment and an improving economy.
The central bank cut its forecast for headline inflation to average minus 0.2 percent this year from September's forecasts of zero percent and expects inflation to rise to 0.4 percent in 2015, then 2.1 percent in 2016 and 3.2 percent in 2017.
Meanwhile, the economy is expected to improve faster this year than forecast in its September policy update, with Gross Domestic Product seen rising by 1.9 percent this year, up from its previous forecast of 1.7 percent.
But in 2015 the economy is expected to expand by only 2.7 percent, down from 3.0 percent previously forecast before expanding by 3.3 percent in 2016, up from a previous 3.1 percent, and then by 2.3 percent in 2017.
In the second quarter of this year, Sweden's GDP expanded by 0.7 percent from the first quarter for annual growth of 2.6 percent, up from 1.7 percent in the first quarter.
The Riksbank's repo rate was forecast to average 0.5 percent this year, unchanged from its September forecast, but then remain at zero in 2015 before averaging 0.3 percent in 2016 and 1.4 percent in 2017.
The Riksbank issued the following statement: