The cut comes just two weeks after the Riksbank lowered the repo rate by 0.5 percent as part of a move coordinated with other central banks around the globe to help mitigate the effects of the financial crisis.
In announcing the rate cut, the Riksbank added that it expects to lower interest rates a further 0.5 percent in the next six months to further alleviate the effects of the financial crisis.
"The assessment is that the financial crisis aggravates the ongoing economic downturn resulting in a weaker labour market and lower inflation," the bank said in a statement.
The Riksbank cautioned, however, that the effects of the rate cut may not be as pronounced as usual because the high risk premium resulting from the current crisis of confidence has broken the normal link between short term market rates and the repo rate.
The bank also left the door open for changes to its current assessment, which it said had an "unusually great" level of uncertainty.
"If the financial crisis intensifies, or if the effects on the real economy are more extensive, it may be necessary to cut the repo rate more than is assumed in the current assessment. However, if the exchange rate remains weak or if inflation remains high, a higher repo rate may be justified," said the Riksbank.