May 2, 2018 / 4:16 PM / a year ago

REFILE-UPDATE 1-Swedish boss says has more tools to raise inflation

(Refiles, fixing typographical error in first paragraph)

By Tommy Wilkes

LONDON, May 2 (Reuters) - Sweden has more monetary policy tools it could use to lift inflation and help the economy if necessary, the central bank governor said on Wednesday, adding that the world should be worried about record global debt levels.

The Riksbank has postponed raising its benchmark interest rate from -0.5 percent due to stubbornly low inflation, leaving the Swedish crown trading near its weakest levels in almost a decade against the euro.

Price growth has failed to accelerate despite the economy being expected to grow 2.7 percent this year.

Asked if the bank would consider cutting rates even further or buying more bonds should inflation fall from current levels, Stefan Ingves said: “We are not at the end of the road when it comes to using monetary tools.”

He was speaking on the sidelines of an event in London.

While projections are for inflation to rise to target, he said “if that were not the case we can use our balance sheet and the (interest) rate.”

Raising interest rates presents the central bank with “a difficult trade-off” between inflation, the weak currency, and the economic impact of a policy tightening in itself.

Hiking rates too soon could lead the Swedish crown to appreciate and inflation to fall further and lift unemployment if growth took a knock, he added.

Sweden, which has seen rising household indebtedness, is also undergoing a housing boom due to ultra-low interest rates, raising concerns about economic stability but Ingves said supervisory authorities had a weak hand in dealing with the market.

In his speech in London, Ingves, who is also chairman of the Basel Committee on Banking Supervision, warned that as central banks and policymakers think about normalising policy after a decade of extraordinary stimulus, they should be wary of the fact that debts across the world have reached record levels.

“That will create problems going forward,” he said, adding that if economic expansion and an ability to repay did not match the growth in debts the system was at risk of blowing up. (Reporting by Tommy Wilkes Writing by Dhara Ranasinghe and Sujata Rao Editing by Hugh Lawson)

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