Swedish central bank holds rates, hedges prospects of 2019 hike

STOCKHOLM (Reuters) - Sweden's central bank held interest rates on Wednesday and said it aimed to raise them in the second half of the year, though doubts about the strength of economic growth and inflation could cause a rethink.

At its previous meeting in December, the Riksbank raised its benchmark repo rate for the first time in more than seven years, arguing that with inflation back on a firm footing, it could begin gradually tightening policy.

Holding the rate at -0.25 percent as expected, it said little had changed since then but cautioned that further hikes were conditional on the data outlook remaining sufficiently robust.

"There is uncertainty over developments abroad and the strength of domestic demand," the central bank said in a statement. "It is the economic outlook and inflation prospects that will determine future monetary policy."

The Riksbank kept its forecasts for inflation and growth roughly unchanged. Analysts had expected downgrades, and the Swedish crown strengthened after the decision.

Some analysts believe downgrades will still happen, and doubt the durability of a forecast of two rate hikes a year that the Riksbank repeated on Wednesday.

Nordea said that, while it still expected another hike in December, that was dependent on the European Central Bank tightening policy as well.

"It is extremely uncertain whether the ECB will hike ... so it could take a long time before the Riksbank hikes rates again," Nordea economist Torbjorn Isaksson said.

Data suggests Europe's economy is slowing, and Brexit and a persistent trade spat between the United States and China are adding to uncertainties.

Most analysts polled by Reuters before Wednesday's decision expected rate-setters to fulfill their plans and hike again in the second half of the year. But many saw a downside risk to the forecast if inflation disappointed or the ECB followed the U.S. Federal Reserve by taking a dovish turn.

Deputy Riksbank Governor Per Jansson, who voted against the rate hike in December, was absent from Wednesday's meeting.

GRAPHIC: Sweden inflation: http://tmsnrt.rs/2eahojm

GRAPHIC: Riksbank rate, inflation and the Krona: http://tmsnrt.rs/1qEN4Rz

(Reporting by Stockholm Newsroom; Editing by Alison Williams and John Stonestreet)

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