* Riksbank cuts key repo rate to 0.25 pct from 0.50 pct
* Analysts had seen rates unchanged
* To offer banks $13 billion of loans at fixed interest rate
(Adds c.banker comments)
By Niklas Pollard and Mia Shanley
STOCKHOLM, July 2 (Reuters) - Sweden's Riksbank cut interest rates to a fresh record low on Thursday and offered banks 100 billion crowns ($13.2 billion) to boost lending as it strives to reverse the country's worst recession since the 1940s.
The central bank lowered its key interest rate by 25 basis points to 0.25 percent in a surprise move, putting official rates at their lowest since records began in 1907, and said it expected rates to remain at that level until late 2010.
"It's a double whammy, or even a triple whammy," said Roger Josefsson at Danske Markets.
"The deposit rates are actually negative now. In some sense they are creating a money machine for banks. You can lend all you want, but don't put that back into the central bank."
Nearly all economists in a Reuters poll had expected the Riksbank to keep rates on hold at 0.5 percent, in line with a previous central bank forecast that suggested rates would stay around that level at least until early next year.
The Riksbank said the economy had worsened further since its previous meeting, in April, and it expected the repo rate to remain at 0.25 percent until autumn 2010.
"The Riksbank's assessment is that after cutting the repo rate to 0.25 percent it will have reached its lower limit in practice, and that the situation on the financial markets is still not completely normal," it said in a statement.
Deputy Governor Lars Svensson disagreed with the decision and advocated a cut to zero.
Sweden was plunged into recession late last year as the
global financial crisis pulled the plug on market demand,
leaving firms such as world number two truck firm Volvo
The central bank forecast the economy will contract 5.4 percent this year and return to tepid growth of 1.4 percent next year.
While demand remains dismal, signs of stabilisation have emerged in recent months with consumer confidence coming off lows hit around the turn of the year. Manufacturing sector purchasing managers have also shed some of their gloom. [ID:nLP150930] [ID:nL1118200]
FOLLOWING THE ECB
Broadening its arsenal of policy measures, the Riksbank said it would offer banks loans at a fixed rate as was done recently by the European Central Bank, although it offered unlimited amounts.
The Riksbank will offer 100 billion crowns of fixed interest loans with a maturity of 12 months. It said supplementary measures would ensure monetary policy had the intended effect.
"This should contribute to lower funding costs for the banks and lower interest rates for companies and households," it said.
Deputy Central Bank Governor Barbro Wickman-Parak told a news conference that offering loans at fixed rates to the banks was judged more suitable than purchasing government or mortgage-backed bonds, at least for now.
"Sweden has a very bank-based system," she said.
"Company borrowing, in contrast to the United States, is carried out through the banks and in light of that it is reasonable for us to look first to moving through the banking system when we want to ease credits."
The ECB ended up pouring 442 billion euros ($622 billion) of funds into money markets in its first such operation with a term as long as one year, pushing some bank-to-bank borrowing costs to new record lows. [ID:nLO80921]
Wickman-Parak, deputising for an unwell Governor Stefan Ingves, also said that extending further fixed-rate loans was the most obvious step if the economy worsened further.
The Swedish crown weakened against the euro