October 26, 2017 / 8:19 AM / a year ago

UPDATE 1-Swedish c.bank holds rates, no rise seen until mid-2018

* Benchmark rate held at -0.50 as expected

* Riksbank says inflation to remain close to target ahead

* Says to decide on QE in December

* Eyes ECB policy decision later in day (Adds detail, background, currency reaction)

STOCKHOLM, Oct 26 (Reuters) - Sweden’s central bank left its ultra-loose policy unchanged on Thursday, eyeing a decision by the European Central Bank later in the day and repeating it was not expecting to raise rates until the middle of 2018.

The Riksbank has rebuffed warnings that more than two years of negative rates are pushing an already strong economy close to overheating.

Inflation - long a headache for rate-setters - has been close to target for most of the year and above 2 percent for three months in a row.

But the central bank argues it is too risky to start tightening policy as inflation will dip back below 2 percent again in coming months.

“It has taken time and a great deal of support from monetary policy to bring up inflation and inflation expectations,” the Riksbank said in a statement.

“It is therefore important that the strong Swedish economic activity continues to have an impact on price developments so that inflation expectations remain anchored at the target.”

The Swedish crown was broadly unchanged after the announcement.

With the European Central Bank yet to outline its path to normalizing policy - a decision on tapering asset purchases is expected later on Thursday - the Riksbank does not want to get ahead of its larger peer.

Tightening too soon could make the Swedish currency more attractive and undo years of hard work.

The ECB publishes its monetary policy statement at 1145 GMT.

The Riksbank held fire on whether or not to extend its 290 billion Swedish crown ($35 billion) bond-buying programme, saying it would make a decision in December.

“We will have to wait to see what the ECB does and how the data looks by December,” SEB economist Olle Holmgren said.

“We think that they will not extend the programme, but they are keeping the door open for an extension.”

Analysts in a Reuters poll were unanimous in forecasting no change in rates. They expected the Riksbank to wait until its Dec. 20 meeting to announce a decision on bond purchases and that they would not be extended. ($1 = 8.2115 Swedish crowns) (Reporting by Stockholm Newsroom; Editing by Toby Chopra and Niklas Pollard)

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