But economists said its forecasts for rates and lower than previously expected growth next year showed there was a slim chance of another reduction early in 2013. It kept a forecast for growth this year of 0.9 percent but cut its 2013 outlook to 1.2 percent from 1.8 percent, reflecting the sagging of an economy that is still doing much better than most of its euro zone peers.
"The weak developments in the euro area are having a clear effect on the Swedish economy," the bank said in a statement. "The risks entailed in households' high level of indebtedness remain, but given the weaker economic activity and lower inflation, the Executive Board of the Riksbank assesses that it is appropriate to cut the repo rate," it added.
Governor Stefan Ingves said the downturn was expected to be a typical cyclical weakness rather than a repeat of the crash that followed the 2008 global financial crisis. "We see ahead of us a quite quick economic recovery, where 2013 is a weak year, but after that it goes back to some sort of normal situation," he told a news conference.
The crown currency initially firmed against the euro, but by 1156 GMT it was trading at 8.7360 to the euro, close to levels before the rate announcement. Ratings agency Moody's on Friday kept its AAA rating on Sweden's debt, reflecting a more successful balance of a strong welfare state with support for the private sector and growth. The ESV official budget watchdog on Monday forecast that the country's public sector deficit would be 0.6 percent of gross domestic product this year, falling to 0.3 percent in 2013.
In contrast to the euro zone where countries are struggling to slash budget deficits to below 3 percent of national output, Sweden's strong welfare state has generated an overall shortfall of just 0.6 percent this year. It will fall to 0.3 percent next year, underpinning a triple-A credit rating. Several central bankers, however, have expressed worries about the amount of household debt, at 170 percent of disposal income, and do not want to fuel growth with lower rates.
Ingves said the issue of household debt needed to be kept under scrutiny, but took heart from the fact that the rate of lending growth and house price growth was lower. The cut to 1.0 percent was in line with forecasts in a Reuters poll, where opinion was divided as to whether a new rate cut to 0.75 percent would come early next year.