Riksbank policy on hold, no change to repo rate at 0%
Repo rate seen at zero for years to come
Says recovery started but way ahead fraught with risks
Says prepared to use all tools to support economy
Adds quotes, detail, background, graphic
STOCKHOLM, Sept 22 (Reuters) - Sweden's central bank kept its policy on hold on Tuesday as expected, saying the economy was beginning to pick up but that both monetary and fiscal policy would need to support growth for a long time.
Sweden's economy has fared better than many other countries in Europe and the central bank said it expected gross domestic product to fall around 3.6% this year, much less than earlier feared.
After a brutal second quarter, the economy has turned the corner, but the Riksbank urged caution.
"Although the recovery will continue in the coming years, the effects of the pandemic on the global economy are expected to be prolonged, and future developments are fraught with risks of setbacks, in both the short and longer term," the central bank said in a statement.
The Riksbank has responded to the pandemic with a rescue package including loans and an expanded programme of asset purchases of 500 billion Swedish crowns ($56.41 billion) to support credit supply and liquidity in the banking system.
With the monetary policy taps almost fully open, few expect major policy moves ahead, especially as the government has started to take over the heavy lifting in boosting jobs and getting the economy moving again.
However, a fresh lockdown across Europe could mean recovery stalls.
The central bank, which has not cut the benchmark repo rate during the pandemic despite inflation well below the 2% target, said it would use the tools at its disposal to provide support to the economy and prices.
"The repo rate can also be cut if this is assessed to be an effective measure, particularly if confidence in the inflation target were to be threatened," it said.
Swedish rates and inflation:http://tmsnrt.rs/1qEN4Rz
(Reporting by Stockholm Newsroom; editing by Niklas Pollard)
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