Swedish c.bank sees no change to policy despite inflation pick up
By Simon Johnson
STOCKHOLM, July 1 (Reuters) - Sweden's central bank kept policy unchanged on Thursday and said that the economy needed long-term support even as the effects of the pandemic faded, striking a more cautious note than some other central banks that have flagged tighter policy to come.
The pandemic has affected Sweden's economy less than many others in Europe, in part due to the country's reliance on mostly voluntary social distancing measures that have allowed many businesses to keep operating.
The government has begun easing many restrictions and recovery has been faster than expected. The Riksbank sees the economy growing 4.2% this year, inflation is above the 2% target and house prices have soared.
Nevertheless, the bank believes the economy will need support from fiscal and monetary policy for some time to come.
"The Executive Board has therefore decided to hold the repo rate unchanged at zero percent and that during the fourth quarter the Riksbank will continue purchasing assets within the envelope of SEK 700 billion ($81.62 billion)," it said in a statement.
The benchmark repo rate - unchanged during the pandemic - is expected to stay at 0% through the third quarter of 2024 at least.
Analysts in a Reuters poll had forecast no change in policy.
The Riksbank's caution contrasts with several other central banks.
Earlier this month, the U.S. Federal Reserve signalled U.S. rates would probably rise from 2023 rather than 2024, as previously expected.
Just a day later, the central bank of Sweden's neighbour, Norway, said it expected to raise interest rates four times by mid-2022.
The Riksbank raised its forecast for inflation, but said price pressures were "moderate," though expected to rise in the coming years.
"The Executive Board may cut the repo rate or in some other way make monetary policy more expansionary if inflation prospects weaken," the central bank said.
"A less expansionary monetary policy may be justified if inflation were to risk overshooting the target significantly and persistently."
(Reporting by Stockholm Newsroom; editing by Niklas Pollard & Simon Cameron-Moore)
