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

STOCKHOLM (Reuters) - Sweden's central bank kept monetary policy unchanged on Tuesday as expected, saying it was too early to start weaning the economy off extraordinary stimulus measures amid uncertainty over the speed of recovery from the effects of the pandemic.

The central bank, which held its benchmark rate at 0% and said it would complete its 700 billion crown ($83.26 billion) asset purchase programme as planned this year, raised its forecast for growth, but said policy needed to remain expansionary.

"We consider it is much too early and risky to change the direction of monetary policy," Governor Stefan Ingves told reporters.

"If we were to be wrong, we would be faced with a steep hill to climb and we would have to start from the beginning again."

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 has 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 in Europe and in Sweden, the mostly voluntary restrictions will remain in place for a while longer due to continued high levels of new infections.

Most analysts predict that 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 if confidence in the inflation target were under threat.

"The Riksbank would rather stimulate too much than too little," Nordea economist Torbjorn Isaksson said. "Thus, any tightening seems distant."

($1 = 8.4079 Swedish crowns)

(Reporting by Simon Johnson; editing by Niklas Pollard and Philippa Fletcher)