Sweden's Central Bank said Thursday it would cut its key interest rate by 25 basis points to a new record low of 0.25 percent and said it would offer 1-year loans to banks to boost lending.

According to the Riksbank, the interest rates are expected to remain at 0.25percent until late 2010.

However, Lars Svensson, Deputy Governor deviated from the decision as he was suggesting interest rate cut to zero.

Economists were expecting the Riksbank to maintain rates on hold at 0.5 percent.

The bank said in a statement, "Supplementary measures are necessary to ensure that monetary policy has the intended effect."

Supplementary measures include offering loans worth 100 billion crowns to the banks at a fixed interest rate for the time span of one year.

The krona plunged against the euro, weakening 1 percent to 10.8288 per euro.

As per Riksbank’s forecast the economy will shrink 5.4 percent this year before returning to growth of 1.4 percent in 2010.

Current move of the lender will assist banks with lower funding costs and companies with lower interest rates.