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Market too hawkish on Swedish rate hike expectations, central banker says

By Daniel Dickson and Johan Sennero

STOCKHOLM (Reuters) - Sweden's financial community is too aggressive to predict the country's interest rates will be hiked in mid-2014 or earlier, Deputy Central Bank Governor Per Jansson said on Friday.

Market pricing suggests a roughly 50 percent chance of a hike in April next year and with the market fully pricing it in as early as September.

Too soon, Jansson told Reuters.

"Some analysts and market participants currently expect the Riksbank (central bank) to tighten monetary policy around mid-2014," Jansson said in an interview on Friday. "This is too hawkish. Our plan is to wait until the end of 2014," he added, sharpening a message that the central bank is not in a hurry to raise rates.

The crown weakened on Jansson's comments and 2-year yields fell.

The Riksbank kept rates on hold at 1.00 percent at its last meeting in early September, forecasting it would not hike until late 2014.

The Swedish economy started the year weakly and contracted 0.2 percent in the second quarter. Two of the six rate setters on the Riksbank's board called for a rate cut.

However, an improving global economic picture allied to concerns among the majority of the rate-setting board over high levels of household debt have raised expectations that the central bank would begin to tighten policy earlier than it currently forecasts.

Jansson, however, repeated his message that the central bank's forecast for the key repo rate does not need to be changed even if an expected economic upturn proves stronger than expected.

"Since inflation is relatively low and the risks of overheating are very small, our forecast for the Swedish economy can tolerate some upward revision without needing to affect monetary policy," he said.

Jansson has previously said risks regarding high and growing household debt needs to be taken into account when formulating monetary policy, even after a new framework for financial stability is put in place.

He said too much emphasis was being placed on whether there was a bubble in the Swedish housing market or not and there was a risk policy would be too passive.

"Since it basically is impossible in practice to identify a bubble, the conclusion will almost always be that we do not need to take action," Jansson said.

"We should instead think about the issue in terms of risks that need to be addressed. In this approach, the task is to undertake several policy measures in a gradual manner, in order to affect the system in such a way that it doesn't constantly continue to add to the already high level of risk."

Jansson said risks related to the high level of household debt were a factor that could jeopardise the central bank's forecast for monetary policy.

He said that data since the Riksbank's last meeting in early September had not changed the overall economic picture in any dramatic fashion.

The central bank will publish its next decision on interest rates on October 24.

(Reporting by Johan Sennero and Daniel Dickson Editing by Jeremy Gaunt)