Benchmark rate on hold at -0.25%
Riksbank says will probably hike in Dec
Says rates on hold after Dec for long period
Adds currency reaction, analyst comment, detail, background
STOCKHOLM, Oct 24 (Reuters) - Sweden's central bank held its benchmark repo rate unchanged at -0.25% as expected on Thursday but surprised many by saying it expected to tighten policy in December, despite the economy slowing more sharply than previously expected.
After years of strong growth, a trade war between the United States and China, the chance of a no-deal Brexit and a slowdown in Germany have all started to impact on Swedish businesses.
But inflation remains broadly in line with the Riksbank's forecasts and the majority of rate-setters argue that the economy remains robust and that policy will remain very expansionary even after another rate hike.
"As before, the forecast indicates that the interest rate will most probably be raised in December to zero percent," the central bank said in a statement.
It said a domestic and global slowdown meant the rate path after December had been revised downward "and indicates that the interest rate will be unchanged for a prolonged period".
The crown strengthened sharply after the decision, hitting its strongest level against the euro for around a month. EURSEK=
"The board was significantly more hawkish than expected with the repo rate path left unchanged in the near term," economists at Swedish bank SEB said in a research note.
SEB said the Riksbank's stance was likely to entail that it would require "large negative surprises to incoming data for the board not to follow through" and that it would raise its short-term outlook for the Swedish crown EURSEK= as a result.
All analysts in a Reuters poll had forecast no change in rates. The median forecast in the poll was for the benchmark rate to remain unchanged through next year and into 2021.
In September, the central bank said it would hike late this year or early next.
GRAPHIC: Sweden economy: http://tmsnrt.rs/2bylYpf
GRAPHIC: Riksbank rate, inflation and the Krona: http://tmsnrt.rs/1qEN4Rz
Riksbank rate, inflation and the Krona:http://tmsnrt.rs/1qEN4Rz
(Reporting by Stockholm newsroom; editing by Niklas Pollard)
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