September 22, 2017 / 2:33 PM / a year ago

Exclusive - Front-runner Ekholm blocked as new Riksbank governor: sources

STOCKHOLM (Reuters) - Karolina Ekholm, the front-runner and a Social Democrat top pick to take over as Swedish central bank chief, has been rejected by the opposition, raising the prospect of Stefan Ingves’s mandate as Riksbank governor being extended, sources told Reuters.

FILE PHOTO: Stefan Ingves, governor of the Swedish central bank Riksbank, holds a news conference at the bank's headquarters in Stockholm, Sweden February 12, 2015. REUTERS/Vilhelm Stokstad/TT News Agency/File Photo

The central bank has come in for widespread criticism in recent years, first for raising interest rates too fast after the financial crisis and more recently for keeping negative rates and an ultra-expansionary policy despite a surging economy and the threat of a housing bubble.

Ingves’ second term as governor expires at the end of the year. The appointment of a new governor has been seen by many as an opportunity for rate-setters to reassess a policy that is closely associated with him.

FILE PHOTO: Central Bank of Sweden's Governor Stefan Ingves presents interest rates during a news conference at the headquarters in Stockholm, Sweden February 11, 2016. REUTERS/Thommy Tengborg/ TT News Agency/File Photo

But while the Social Democrats on the Riksbank General Council have pushed to install Ekholm, currently state secretary to Finance Minister Magdalena Andersson and a long-time favourite for the post, the opposition has flatly refused to accept her nomination.

“That is totally out of the question. We can’t have an active Social Democratic politician as Riksbank governor,” a source with knowledge of the matter said.

A second source with knowledge of the discussions confirmed that a majority of the General Council would not back Ekholm as Riksbank governor. The Council is made up politicians and reflects the parties’ seats in parliament.

One of the sources said that the three most likely candidates left were therefore Ingves again as a compromise pick, Deputy Governor Per Jansson or Folksam CEO Jens Henriksson.

Karolina Ekholm, Sweden's State Secretary to the Swedish finance minister, poses for a picture in Stockholm, Sweden November 11, 2014. Picture taken November 11, 2014. Kristian Pohl/Government Offices of Sweden/Handout via REUTERS

Analysts and economists have seen Ekholm as the front-runner for the post, with 55 percent of respondents to an SEB bank survey this month saying they expected her to get the job.

Ekholm served as a deputy governor at the Riksbank from 2009 to 2014. She left before her mandate had expired to take up her role as state secretary when the Social Democrats came to power in 2014.

Ekholm’s exclusion increases the chances that Ingves, 64, will have his mandate renewed, possibly for a shorter period than the usual six-year period, one of the sources said, despite the criticism of some of the policies he has presided over.

“The longer it takes, the more likely it is that other candidates get blocked, which speaks in favour of Ingves,” the source said.

Of the minority centre-left government, four Social Democrats and one Green Party member sit on the General Council. From the opposition there are four Moderate Party members, one from the Centre Party and one from the Sweden Democrats.

Writing by Johan Ahlander; Editing by Niklas Pollard and Hugh Lawson

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