STOCKHOLM Sweden's Riksbank extended its bond-buying programme on Wednesday to cement an upturn in inflation but resistance by half its board raised questions about the future of the bank's ultra-easy monetary policy.
It kept rates unchanged at -0.5 percent.
The division on the six member board forced Governor Stefan Ingves to use his casting vote in favour of the more aggressive easing, the first time he has done so since 2008.
It evoked memories of the last hiking cycle when then board member Lars Svensson ferociously criticised the majority for taking household debt into account when raising rates, damaging the Riksbank's credibility.
Dissenters on the board held the view, shared by many analysts, that ultra-loose policy is out of sync with an economy expected to grow more than 3 percent this year and 2 percent in 2017.
"The Riksbank is still getting over the loss of credibility from 2011 when they raised rates when they shouldn't have," said Capital Economics analyst Stephen Brown.
"Now, they're doing the opposite - easing policy further when they shouldn't," he said.
The Riksbank said it would continue purchasing government bonds during the first six months of 2017 and would buy 15 billion Swedish crowns (1.30 billion pound) of both nominal and index linked debt, taking its total quantitative easing programme to 275 billion crowns from 245 billion crowns.
The crown strengthened after the decision. EURSEK=
The global economy is also improving and a recent rise in long bond yields reflects expectations of a pick up in inflation as well as uncertainty about the policies of the incoming U.S. administration of Donald Trump.
Data this week showed Swedish manufacturers were more bullish about their prospects than at any time since records began in 1996.
But while the economy is increasingly robust, the Riksbank said there were still risks that could threaten the recent upturn in inflation -- which, like the European Central Bank and others, it wants as a bulwark against deflation.
"The Executive Board of the Riksbank has decided to hold the repo rate at −0.50 per cent and there is still a greater probability that the rate will be cut than that it will be raised in the near term," it said in a statement.
Deputy Governor Martin Floden wanted a smaller package, however, and Deputy Governors Cecilia Skingsley and Henry Ohlsson wanted to draw a line under bond buys.
"The phase of monetary stimulus is over and the three reservations were testimony to that," said Nordea analyst Torbjorn Isaksson.
Worries are increasing that ultra-loose policy is creating wider economic problems.
House prices have nearly doubled in the last 10 years and debt levels are among the highest in Europe in relation to disposable incomes with the EU's financial risk watchdog the latest to issue a warning about the dangers.
The Riksbank had been widely expected to hold rates and extend bond buys mirroring a similar mix from the European Central Bank earlier this month.
(Reporting by Johan Sennero, Daniel Dickson and Simon Johnson Editing by Jeremy Gaunt)