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STOCKHOLM, June 13 The International Monetary
Fund said on Friday financial instability linked to a booming
housing market was a growing concern for Sweden's economy and
urged measures to temper households' soaring mortgage debt.
Although Swedish banks were relatively unscathed by the
global financial crisis following the collapse of Lehman
Brothers, regulators have already introduced some of Europe's
tightest capital rules. They argue that with assets four times
the size of the economy, banks represent a risk to stability.
Household debt levels of around 174 percent of disposable
income and rising are a key part of the problem and the central
bank has said lenders should tighten up how they calculate what
level of mortgage households can pay.
"Financial instability is an increasing concern," the IMF
said in its annual review of the Nordic country published on the
Swedish central bank's website.
"It is time for a comprehensive set of macroprudential
actions that, gradually implemented, would help steer mortgage
credit demand towards a sustainable path."
Swedish property prices have risen throughout the financial
crisis and have almost tripled in the last 20 years.
The Fund said the most important measure would be to
introduce a binding maximum amortisation period for new
mortgages. It also suggested limits on debts in relation to
household income and tightening a loan-to-value cap to 75
percent from 85 percent.
Many Swedish households have interest-only mortgage loans
and a recent study by Riksbank found that it takes on average 99
years to pay off the mortgage for those households who do pay
down the principal on the loans.
The Riksbank, wary of the high levels of household
indebtedness, has kept interest rates at 0.75 percent since
December last year, despite inflation undershooting its 2
percent inflation target for more than three years.
Doing so has led to fierce criticism from former Riksbank
governor Lars Svensson and from Nobel laureate Paul Krugman, who
labelled the Riksbank's policy as "sado-monetarism" and warned
that Sweden could face Japan-style deflation if it continued to
undershoot the inflation target.
The IMF, however, said the current monetary policy struck an
appropriate balance between price and financial stability risks,
but said changes - such as slipping inflation expectations -
would warrant a shift in policy.
(Reporting by Johan Ahlander and Niklas Pollard; Editing by