Sweden cuts key interest rate to minus 0.35%

Sweden's central bank announced Thursday a 10-basis-point cut to its key interest rate, the repo rate, to -0.35 percent, and increased its bond purchases, citing uncertainty over the Greek crisis.

"Inflation is rising and economic activity in Sweden is continuing to strengthen. But uncertainty abroad has increased and it is difficult to assess the consequences of the situation in Greece," the bank said in a statement.

"In this uncertain environment, monetary policy needs to be even more expansionary to ensure that inflation continues to rise towards the target of 2.0 percent," it said.

The Riksbank has been trying to lift inflation since it stalled at the end of 2012, and has kept the repo rate in negative territory, which encourages spending, since February.

Sweden, like the neighbouring eurozone, has been concerned about the threat of deflation. Long spells of falling prices can be extremely destructive for economies if consumers start to postpone purchases in hopes of better deals, as that can set off a spiral of job, wage and output cuts that further reduce prices.

The Riksbank said its expansionary policy was having the desired effect with inflation, excluding mortgage rates, ticking in at 1.0 percent in May and expected to be close to 2.0 percent by the end of the year.

"Prices of goods and food are increasing in line with historical averages, while the rate of price increase on services is rising from a low level," it said.

The bank said economic activity was also continuing to strengthen and the situation on the labour market was gradually improving.

It also said it was extending the purchases of government bonds by a further 45 billion kronor (4.81 billion euros, $5.32 billion) with effect from September and until the end of the year.