UPDATE 1-Sweden cuts rates to new low, offers banks loans

STOCKHOLM, July 2 - Sweden's central bank cut its key interest rate by 25 basis points to a new record low of 0.25 percent in a surprise move on Thursday, and said it would offer one-year loans to banks to foster lending.

The Riksbank said it expected interest rates to remain at that level until late 2010. Deputy Governor Lars Svensson disagreed with the decision and advocated a cut to zero.

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 repo rate is expected to remain at this low level until autumn 2010," the central bank said in a statement.

"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.

"Supplementary measures are necessary to ensure that monetary policy has the intended effect."

Those measures entailed offering 100 billion crowns' worth of loans to the banks at a fixed interest rate and a maturity of 12 months.

"This should contribute to lower funding costs for the banks and lower interest rates for companies and households," the Riksbank said.

The Swedish crown fell against the euro, which jumped as high as 10.7999 crowns according to Reuters data, compared with 10.7183 before the rate cut announcement.

"It's a double whammy, or even a triple whammy," said Roger Josefsson at Danske Markets. "Not only did they cut to 0.25 percent but they also added a 12-month repo facility at 0.4 percent."

Official Swedish rates are at their lowest since records began in 1907.