Sweden’s Central Bank is stepping in to ease the burden on the Swedish economy and related exchange traded funds (ETFs).

In what looks to be the country’s worst recession in more than half a century, Sweden’s Central Bank cut its benchmark interest rat to a record 0.5%, reports Johan Carlstrom for Bloomberg. The Swedish krona gained against the euro after the announcement.

It is estimated that the economy will shrink 4.5% this year and grow 1.3% next year. Deflation is expected to average 0.3%. Joblessness will climb to 8.9% this year and will continue to advance to 10.7% next year.

The government has promised $5.2 billion, or 1.5% of GDP, in spending on measures to boost job creation, which include tax cuts, infrastructure, schools and research. Further spending may go up to $7.27 billion in 2010.

Some economists think the Swedish Central Bank is being too cautious and should reduce interest rates further, write Joel Sherwood and Katie Martin for The Wall Street Journal. Some expect rates to reach 0.25% while the Swedish Bank SEB projects a 0.1% rate.

The Swedish Central Bank may resort to unconventional policies measures, like quantitative easing, as a last-ditch effort to protect the economy if interest rate cuts do not deter deflationary pressures.

• iShares MSCI Sweden Index (EWD): up 11.2% year-to-date

• CurrencyShares Swedish Krona Trust (FXS): down 6.4% year-to-date

Read the disclosure, as Tom Lydon is a board member of Rydex Investments.

Max Chen contributed to this article.

Tags: Currency ETFs, Europe, EWD, FXS, Global ETFs, Sweden, Swedish Krona