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Swedish central bank governor hits out at proposed new Riksbank law

Stefan Ingves holds a news conference presenting decisions on the repo rate and monetary policy in Stockholm

STOCKHOLM (Reuters) - Proposals for a new law governing how Sweden's central bank operates and which policy tools it can use would limit its ability to react to future crises and would raise risks to the economy, Governor Stefan Ingves said on Tuesday.

The broadside from Ingves came as countries around the world look at how to adjust regulation so that governments, financial authorities and central banks can cope better with future economic crises like that caused by the pandemic.

"The proposals that exist today are bad proposals and need to be rewritten," Ingves said in a speech. "They put a lot a lot of energy in trying to reduce the Riksbank's independence ... and I do not think that is good for Sweden."

Last year, the government outlined a new law that details the Riksbank's mandate and powers more closely than previous legislation and aims to give parliament greater scrutiny over the central bank.

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Ingves said that would make it difficult for the Riksbank to act quickly and decisively enough in a financial crisis.

"If you think about what was necessary to deal with the global financial crisis 2008-9 and the current pandemic and different types of future event, we need tools at the Riksbank which are not included in the proposals," Ingves said.

The central bank has launched a raft of measures including loans and an expanded programme of asset purchases to support credit supply and liquidity in the banking system to ease the economic impact of the pandemic.

Central banks took a leading role in ensuring economic recovery from the financial crisis in 2008-2009, often without a clear framework within which to work.

The pandemic has forced central banks into further emergency measures to keep economies from going under fueling the debate on how to divide responsibility in economic crises between the government, financial regulators and central banks.

The government is still considering the proposals for new legislation with any changes not scheduled to become law before 2023.

(Reporting by Simon Johnson; editing by Niklas Pollard)