The Swedish crown dived to a six-year low and local stocks hit record highs on Thursday after Sweden's central bank unexpectedly launched a quantitative easing program and cut its main repo rate into negative territory.
The Riksbank lowered its key repo rate by 10 basis points to -0.10 percent and said it would buy 10 billion crowns' worth of government bonds. It also said it was prepared to do more at short notice to safeguard its inflation target of 2 percent.
The majority of analysts in a Reuters poll had forecast no change this month. Analysts were divided on whether the Riksbank would adopt further unconventional policy measures.
In the battle against deflation, the European Central Bank has already taken its interest rates to negative and will launch a 1 trillion euro quantitative easing program next month.
That has already led the Swiss and Danish central banks to lower rates deeper into negative territory.
Thursday's measures hit the Swedish currency hard.
The crown fell nearly 2 percent against the dollar to 8.5512 crowns per dollar, its lowest since April 2009. Against the euro, the Swedish currency skidded 1.7 percent to a two-month low of 9.6984 crowns.
Sweden's main OMXS30 equity index hit a new record high of 1,623.02. Yields on Sweden's 10-year benchmark government bond were last down 8.7 basis points at 0.56 percent in the wake of the Riksbank moves.
"Clearly they've been more aggressive than expected,'' said Adam Cole, global head of FX strategy at RBC, London.
"It leaves both the threat of more QE and the threat of more rate cuts open going forward. So it's hard to be constructive on the currency with those two threats open.''