Swedish central bank leaves policy unchanged amid COVID uncertainty


Benchmark rate to stay at 0% for coming years

Riksbank to complete 700 bln SEK bond purchases this year

Analysts had forecast no change in policy

Adds background, detail, graph

STOCKHOLM, April 27 (Reuters) - Sweden's central bank kept monetary policy unchanged on Tuesday as expected, vowing to support the economy as long as needed amid uncertainty over the speed of recovery from the effects of the pandemic.

"The economic outlook is slightly brighter now than it was in February, but the pandemic is not over, and inflationary pressures remain low," the central bank said in a statement.

The Riksbank forecast the benchmark rate, at 0%, would remain unchanged for the foreseeable future.

Central banks face a delicate balancing act.

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

Sweden's economy is seen expanding 3.7%, and inflation is within touching distance of the central bank's 2% target.

Furthermore, massive fiscal and monetary stimulus as jacked up already sky-high house prices. Single-family home prices were up a record 15.5% in March from the same month a year earlier, raising fears about financial stability.

Some central banks - like Canada's - are eyeing taking their foot off the gas pedal. Norway's central bank has warned it may hike its key rate later this year.

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

The pandemic seems to be easing in many countries, but few would be brave enough to declare the crisis over.

Vaccination programmes have hit delays and in Sweden, the mostly voluntary restrictions will remain in place for a while longer.

Higher inflation is probably temporary and most analysts believe the Riksbank will have a bigger struggle to prevent inflation dropping far below the 2% target in the years ahead than to keep it from overshooting.

While the Riksbank kept its rate forecasts unchanged, it left open the door for a cut "particularly if confidence in the inflation target were under threat".

Swedish rates and inflation:http://tmsnrt.rs/1qEN4Rz

(Reporting by Simon Johnson; editing by Niklas Pollard)

((simon.c.johnson@thomsonreuters.com; +46 70 721 1045; Reuters Messaging: simon.c.johnson.reuters.com@reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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