January 12, 2017 / 9:52 AM / a year ago

CORRECTED-UPDATE 1-Swedish inflation hits highest level in 6 years, Riksbank easing seen done

(Corrects par 2 to show Riksbank has bought 40 (not 30) percent of outstandig government bonds)

* Dec CPI 1.7 pct yr/yr, CPIF 1.9 pct yr/yr

* Analysts see cbank done with easing

* Swedish crown strengthens

STOCKHOLM, Feb 22 (Reuters) - Underlying inflation in Sweden hit its highest level in six years in December, rising to within touching distance of the central bank’s 2 percent target and supporting a view that the Riksbank is done with monetary policy easing.

The central bank has taken rates deep into negative territory and bought up around 40 percent of the stock of outstanding government bonds in its fight to push up prices, despite worries about rising levels of household debts.

Underlying inflation, which strips out the effect of rate changes, hit 1.9 percent in December while minutes from the last monetary policy meeting showing several rate-setters believe the cost of further stimulus outweighs the benefits.

“Overall, this strengthens our view that there will not be any more rate cuts, nor will there be an extension of quantitative easing,” Knut Hallberg, economist at Swedbank said.

The figures and the minutes boosted the crown, which gained around 0.4 percent to stand at around 9.50 to the euro at 0937 GMT.

Sweden’s economy has boomed in recent years and criticism of the Riksbank’s steely focus on reaching its 2 percent target has been growing.

Household debt levels are among the highest in Europe, measured against disposable incomes, while house prices have rocketed.

But the Riksbank has argued that it has had little choice but to follow in the footsteps of the European Central Bank or risk a stronger crown choking off a pick up in prices.

Minutes of the last monetary policy meeting showed that several policy-setters now see the risks of easier policy as outweighing the benefits, given that the upturn in inflation is on a firmer footing, unemployment is falling and that the central bank is running out of ammunition.

“There is probably some monetary policy gunpowder left, but certainly not an unlimited amount,” Deputy Governor Henry Ohlsson said in the minutes.

“What remains should be saved for situations when the need is greater than it is now.”

The Riksbank held its key repo rate at -0.50 percent and extended its bond purchase programme to the middle of the year at its last meeting in December.

Rate-setters Ceclia Skingsley and Henry Ohlsson argued for no change in monetary policy in December while Deputy Governor Martin Floden wanted a smaller expansion of the Riksbank’s bond-purchase programme, forcing Governor Stefan Ingves to use his casting vote in favour of more aggressive policy expansion.

Reporting by Stockholm Newsroom

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