The bank cut its key rate by a quarter point to 2% and said another cut this year was possible.

“The economic recovery that began last year has lost momentum, and inflation is expected to be somewhat lower than in the previous forecast,” the Riksbank said in a statement.

The Nordic country’s economy contracted by 0.2% in the first quarter of the year, dragged down in part by a slowdown in household consumption.

Swedish inflation fell to 0.2% year-on-year in May, according to Statistics Sweden.

The inflation measure used by the Riksbank to guide monetary policy, CPIF, which is adjusted for interest rates, came in at 2.3% – close to the central bank’s 2% target.

“The outlook for the economy and inflation is ‘uncertain’,” Riksbank said.

“There are substantial risks linked to trade policy and the geopolitical tensions, not least as a result of the escalating conflict in the Middle East, which could affect economic developments abroad,” it said.

“These risks and the questions about the strength of domestic demand mean that it is uncertain how quickly the Swedish economy will recover,” the bank added.

The announcement came hours before a rate decision by the US Federal Reserve – which is expected to hold its own rate steady.

The Riksbank’s decision to cut its rate was widely expected by economists, and the central bank said “the forecast for the policy rate entails some probability of another cut this year”.

Economists at bank Nordea noted that the central bank “is in no hurry to cut rates again”.

“In our view, the economic recovery will continue, reducing the need for additional rate cuts,” Nordea chief analyst Torbjorn Isaksson said in a note.