By Simon Johnson

STOCKHOLM (Reuters) – Sweden’s central bank kept policy unchanged on Tuesday and said it expected its key interest rate to remain at zero in the coming few years, despite a recent up-tick in inflation.

With the end of public restrictions, Sweden’s economy has returned to pre-pandemic levels and growth is likely to continue.

However, fiscal and monetary policies remain extremely loose and Riksbank did not give any indication that it was in hurry to alter course.

In a statement, the central bank explained that inflation needs to stay at or near the target for the future.

It said that any lending arrangements made during the pandemic would be closed immediately, and the pre-pandemic collateral requirements will be reinstated at year’s end.

In accordance with previous guidance, it said that the central bank expected to cease asset purchases and leave its balance sheet more or lesser unchanged through 2022.

According to Reuters, analysts forecast that there would be no changes in rates or balance sheet plans.

NORWAY FIRST

With the effects of the pandemic ebbing, central banks around the world are facing tough decisions about when to start weaning economies off emergency support amid uncertainty about whether high inflation readings are signs of longer-term price pressure or just temporary effects.

Norway, which is part of the G10 developed economy group, will be the first to initiate a series rate rises on Sept. 23.

It is possible that the U.S. Federal Reserve will reduce its bond purchase later in this year.

Sweden’s inflation reached 2.4% in August. That is above the target of 2%.

According to Riksbank, inflation is “expectedly higher than 2 per cent in the next year before dropping back”.

If inflation is persistently high, it might consider a more restrictive monetary policy.