November 15, 2017 / 9:17 AM / a year ago

Swedish central bank chief says housing market could affect policy in time -DI

STOCKHOLM, Nov 15 (Reuters) - Signs that Sweden’s red-hot housing market is cooling off are unlikely to impact monetary policy now, but may make the central bank’s path toward normalizing rates trickier, Riksbank Governor Stefan Ingves said in an interview published on Wednesday.

Recent data shows house prices have dipped after years of rises, with some analysts concerned that plans for tighter mortgage regulations could lead to much larger falls.

“I can’t see, at the moment, that it would affect monetary policy to any great degree,” Ingves told business daily Dagens Industri.

But with many Swedes having floating-rate mortgages, future interest rate hikes will have a direct impact on many households’ ability to spend.

“Sensitivity to interest rates is higher than it has been previously,” Ingves said. “Naturally, that can potentially play a role for both individual households and monetary policy further ahead.”

The central bank currently plans to start hiking rates slowly from the middle of next year.

Ingves also said it was too early to say that the battle with low inflation had been won.

Sub-zero rates and a hefty bond-buying programme have pushed inflation above the central bank’s 2 percent target in recent months, but figures for October, published earlier in the week, showed underlying inflation dipped to 1.8 percent.

Ingves said a period with inflation above target would not be a big problem. But a fall in inflation and inflation expectations would be more difficult to deal with.

“Since inflation was below target for such a long time it is not a big issue if inflation would be above target for some time,” he said.

“And if that were to happen — which is not in our forecast — it would be easy to handle. But if the opposite situation would occur we would have to start over from the beginning. That is a more troublesome scenario.”

It was not clear whether the Dagens Industri interview had been conducted before or after the October inflation figures were published. (Reporting by Simon Johnson; Editing by Catherine Evans)

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