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Swedish c.bank seen cutting key rate 50 bps in Feb

Published 02/06/2009, 10:11 AM
Updated 02/06/2009, 10:16 AM
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* Swedish central bank rate announcement Feb. 11

* Most economists see 50 basis point cut to 1.50 pct

STOCKHOLM, Feb 6 (Reuters) - Sweden's central bank is seen cutting interest rates by 50 basis points next week as it seeks to invigorate an economy languishing from a global financial crisis and flagging exports, a poll showed on Friday.

Out of the 19 economists polled by Reuters, 11 predicted the Riksbank will follow up a record 1.75 percentage point rate cut in December with a 50 bp easing at its Feb. 10 meeting to put its repo rate at 1.5 percent.

Nearly all the remaining economists saw the Riksbank slashing rates even more -- by 75 or 100 basis points. One analyst forecast the bank would keep rates at 2.0 percent.

"If they want it to have good impact, they should cut as quickly as possible," SBAB economist Tor Borg said.

The median forecast of the poll also showed economists expect the central bank, faced with the risk of deflation, to cut interest rates to 1.0 percent by the end of this year, its lowest level since the repo rate was introduced in 1994.

"We think that with the inflation trend clearly on the downside and fears of deflation mounting, the Riksbank will probably continue cutting rates," Dresdner economist Matteo Radaelli said.

The Swedish economy, which relies heavily on export companies such as telecom equipment maker Ericsson and world number two truck maker Volvo to fuel growth, has been hit by the worldwide slowdown spawned by the global financial crisis.

With market demand collapsing in sectors such as the vehicles industry, the economy slid into recession already in the third quarter and economists expect it to contract by as much as 2 percent this year.

The central bank forecast in December the Nordic country's economy would contract by 0.5 percent this year, an outlook the bank is widely expected to slash along with its key rate at its meeting next week. Inflation has also plummeted as the sharp slowdown of the global economy has translated into tumbling commodity prices.

Swedish consumer price inflation in December fell at its fastest pace since records began in the 1950s to put it well below the Riksbank's 2-percent target.

"There is a clear risk of Sweden entering a deflationary spiral and it is better to cut too much now than be sorry later," Swedish bank Handelsbanken said in a research note.

(Reporting by Daniel Dickson, Johan Sennero and Love Liman; Writing by Niklas Pollard; editing by Stephen Nisbet)

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