Swedish c.bankers ready to use all tools if recovery hits trouble

But with many countries reimposing restrictions due to a spike in new COVID-19 infections, recovery could yet stall. "If we need to make monetary policy more expansionary, an expansion of the balance sheet is probably more effective than a negative policy rate," Deputy Governor Anna Breman said.

Sweden's central bank is willing to use all the tools at its disposal, including a rate cut, to fight any setbacks to the ongoing recovery, the minutes of the Riksbank's September policy meeting showed on Thursday.

Sweden's economy is climbing back from a deep plunge in the second quarter and the central bank has said its package of measures to fight the pandemic has worked. But with many countries reimposing restrictions due to a spike in new COVID-19 infections, recovery could yet stall.

"If we need to make monetary policy more expansionary, an expansion of the balance sheet is probably more effective than a negative policy rate," Deputy Governor Anna Breman said. The central bank has left its benchmark repo rate at 0% since December while launching a 500 billion crown ($56 billion) asset purchase programme as well as other measures to maintain liquidity in the financial system and credit flowing to banks and households.

While the central bank has not ruled out a rate cut, it remains loathe to go back into negative territory - where it was for nearly five years between 2015 and 2019 - with Breman saying rates could get stuck below zero. "This makes it less attractive to reintroduce a negative policy rate as potentially negative side-effects ... will be greater the longer the policy rate is negative," she said.

Deputy Governor Per Jansson said a rate cut would be needed if confidence in the inflation target eroded. Sweden's economy is expected to contract around 3.6% this year, much less than feared in the spring and a much better outcome than that seen for much of the rest of Europe.

The Riksbank left policy unchanged on Sept. 22. ($1 = 8.9331 Swedish crowns)