Sweden's central bank reduced its benchmark interest rate for a fourth time in a year to revive growth as the largest Nordic economy succumbs to Europe's debt crisis.

The key interest rate was lowered by a quarter of a percentage point to 1 per cent, the Stockholm-based Riksbank said in a statement today.

The bank signalled it will probably keep the benchmark unchanged until the end of next year.

"They did the right thing," said Knut Hallberg, an analyst at Swedbank in Stockholm. "There is a slight, slight chance of another cut" next year as "it's going to be a tough winter," he said.

Sweden's $540 billion economy, which relies on exports for about half its output, is struggling to expand as the debt crisis in Europe erodes demand for its goods and services.

Ericsson, the world's largest maker of mobile phone networks, and truck maker Volvo, are among Swedish companies cutting thousands of jobs in response to shrinking markets, unsettling consumers in the Nordic economy.

"The weak developments in the euro area are clearly affecting the Swedish economy, which is now slowing down," the Riksbank said.

"Household consumption is weak, unemployment is rising and inflationary pressures are low."

The bank said it expects the rate to be at 1.1 per cent in a year, versus an October forecast of 1.3 per cent. It sees the rate at 1.8 per cent by the end of 2014.

The economy will expand 1.2 per cent next year, compared with an October forecast of 1.8 per cent.

Its prediction for 2014 growth was unchanged at 2.7 per cent, while it sees inflation at only 0.3 per cent next year, far below its 2 per cent target.

The krona strengthened 0.2 per cent to 8.7442 per euro as of 9.38am in Stockholm. Swedish two-year yields were little changed at 0.73 per cent.

Bloomberg