A cut in Sweden's securities repurchase rate was widely expected, but the aggressiveness of Thursday's cut of 0.25%, to 2.90%, suggested that the Riksbank will continue to make policy on domestic assessments rather than shadow the ECB. The ECB's key interest rate for the 11-country euro zone is now at 3.0 per cent. Sweden chose not to participate in the euro's launch this year, but many expect the country to join by 2002.

`Cut the Umbilical Cord' "The rate ease cut the umbilical cord with the ECB," said Binit Patel, economist at Goldman, Sachs & Co. in London. "Before, many people were wondering if the Riksbank would follow ECB policy, but this suggests they can act independently and that more cuts may be in the pipeline."

To be sure, some suggest Sweden's central bank may expect the ECB to cut its interest rate in the nearterm. But most economists believe it is more likely that the Riksbank is focusing on domestic fundamentals. Indeed, the Swedish central bank said it was cutting its repo rate because it expected a weaker global outlook to damp domestic inflation. In a quarterly inflation report that coincided with the rate cut Thursday, the central bank said, "The risk of inflation being somewhat lower than in the main scenario is judged to be greater than the risk of a higher [inflation] rate."

Sweden's rate move, effective from Wednesday, marks the first time in decades that Sweden's key interest rate has been lower than Germany's. Some economists see a possibility that the Riksbank could make another cut of between 0.20 per cent and 0.25 per cent in the coming months, whether or not the ECB eases rates. Others argue that the Swedish central bank will be loath to widen the gap with ECB rates too far.

Stocks, Bonds Rise European stock and bond markets rose after the rate cut, which was seen as a positive factor alongwith a rise on Wall Street that helped override anxieties over the Nortlavia.

The Swedish krona dropped sharply immediately after the announcement but gradually recovered in choppy trading. Late in the Europe, the euro was trading at 8.9865 kronor, up from 8.9795 kronor Wednesday, but lower than 9.0000 kronor just before the cut. Riksbank Gov.

Urban Baeckstroem told a parliamentary hearing Thursday that Sweden's move below the ECB's interest rate shouldn't have any adverse impact on the krona. "I'm not so sure that small differences between short rates would have any significant effects on the exchange rates," he said.

Krona Seen Strengthening Some analysts expect the krona to strengthen in the coming months on expectations that Sweden will join the euro area. "It's widely expected that when Sweden does join, there will be a stronger rate than there is now," said Robert Prior, European economist at HSBC in London. He expects the euro to fall to 8.7000 kronor by year end. However, that scenario couldchange if Swedish public opinion shifts against joining the euro.

Sweden's solid fundamentals, which include strong growth, extremely low inflation and a healthy current account, are also expected to help boost the krona. Indeed, considering the country's economy is expected to grow around 2.3 per cent this year, "the Riksbank is taking a fairly activist approach with its cut," said Thomas Ekeli, international economist at Lehman Brothers in London.

On the whole, Sweden's rate move gives little insight to the ECB's next move, many analysts say. "The Swedish central bank is much more pragmatic and short-term oriented than the ECB," said Hans Redeker, economist at Chase Manhattan in London. The Swedish central bank uses direct inflation targeting, in contrast to the ECB, which makes policy based on a mix of factors. The ECB's medium-term goal of inflation below 2 per cent is also stricter than the Riksbank's main target of 2% inflation. And the ECB must consider varying speeds of economic growth in 11countries, while the Riksbnk is able to focus on one economy.

Views are mixed on the ECB's next move. Many economists expect it to cut its interest rate by 0.25 per cent in the second quarter, as extra insurance for euro-zone growth. The resignation of German Finance Minister Oskar Lafontaine, who heightened political tensions with the ECB, is seen clearing the way for such a move.

The Organization for Economic Cooperation and Development this week also concluded that the ECB can afford to cut amid low inflation and casts of less than 2 percent. Some analysts read a shift toward easing sentiment in remarks this week by various ECB officials. ECB president Wim Duisenberg and executive board member Eugenio Domingo Solans, Thursday in separate speeches that they agreed with the OECD's forecast that the euro-zone economy this year will grow about 2 per cent.

"Compared with several months ago, prospects for growth are worse than before," Domingo said. But other analysts argue that these remarks differ littlefrom those in the ECB's recent monthly report, which called the current interest rate "appropriate." Some believe the ECB is increasingly likely to keep rates on hold, on the assumption that weakness in economic growth and inflation is temporary and will pick up this year even without a further interest rate cut. They also note that ECB officials have urged euro-member governments to rein in their budget deficits, another factor that speaks against a rate cut.

The ECB's policy-making council next meets April 8. Separately, some analysts said Denmark's central bank may cut its key repo rate by 15 basis points to 3.25% within the next two weeks. But such a move would be based mainly on the strength of the Danish krone rather than any effect of Sweden's move. Denmark is also not a member of the euro zone, having chosen not to participate in the Jan. 1 launch.