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UPDATE 2 – Swedish central bank says too early to change policy amid COVID uncertainty

By on April 27, 2021 0

* Reference rate to remain at 0% for the coming years

* Riksbank to buy SEK 700 billion in bonds this year

* Governor Ingves says far too early to change course

* Analysts had not expected any policy changes (adds Bank Governor Ingves, analyst comments)

STOCKHOLM, April 27 (Reuters) – The Swedish central bank maintained monetary policy on Tuesday as planned, saying it was too early to start weaning the economy from extraordinary stimulus measures amid uncertainty over how quickly recovery from the effects of the pandemic.

The central bank, which has kept its benchmark rate at 0% and said it will complete its 700 billion crown ($ 83.26 billion) asset purchase program as planned this year, has raised its growth forecast, but said the policy should remain expansionary.

“We consider it far too early and risky to change the direction of monetary policy,” Governor Stefan Ingves told reporters.

“If we were wrong, we would be faced with a steep slope to climb and we would have to start over from the beginning.”

Central banks face a delicate balancing act.

Despite the ongoing pandemic, global growth is picking up and is expected to reach around 6% this year, according to the International Monetary Fund (IMF).

The Swedish economy is expected to grow by 3.7% and inflation is within reach of the central bank’s 2% target.

In addition, massive fiscal and monetary stimulus have pushed up already sky-high house prices. Single-family home prices rose a record 15.5% in March from the same month a year earlier, raising fears of financial stability.

Some central banks – like Canada – are considering taking their foot off the accelerator pedal. The Norwegian central bank has warned it could raise its policy rate later this year.

Still, there are reasons for central banks to be cautious.

The pandemic appears to be easing in many countries, but few would have the courage to declare the crisis over.

Vaccination programs have been delayed in Europe and Sweden, restrictions, mostly voluntary, will remain in place for some time longer due to the high level of new infections.

Most analysts predict that the Riksbank will have a bigger fight to keep inflation from falling well below the 2% target in the coming years than to keep it from going above.

While the Riksbank kept its rate forecasts unchanged, it left the door open to a cut if confidence in the inflation target was threatened.

“The Riksbank prefers to stimulate too much rather than too little,” Nordea economist Torbjorn Isaksson said. “So any tightening seems far away.” ($ 1 = 8.4079 Swedish kronor)

Reporting by Simon Johnson; edited by Niklas Pollard and Philippa Fletcher