By Charles Duxbury 
 

STOCKHOLM--A rate-setting board member at Sweden's central bank said Friday that the country needs new tools to manage household debts as the Riksbank's main interest rate, the repo rate, is unsuitable for the job.

"Household debt and housing prices have been taken into account in the repo-rate decisions," Kerstin af Jochnick said in a speech in the Swedish capital. However, the repo rate is "a blunt instrument for dealing with financial imbalances", she added.

So called macroprudential policy is better suited to managing financial imbalances than monetary policy, Ms. af Jochnick said. Macroprudential policies include setting limits on how much households may borrow to buy property, something Sweden has already done.

The deputy governor didn't specify in detail what other tools she would like to see but noted that forcing households to pay down their mortgages rather than just pay off the interest is an example.

Sweden's central bank board voted five to one to cut the main interest rate from 1.25% to 1% in December with one board member advocating a cut to 0.75%.

A number of board members, including Ms. af Jochnick and Governor Stefan Ingves have warned that keeping interest rates too low for too long could lead households to borrow too much. That would leave them and the financial vulnerable if rates then rise or house prices then fall.

Write to Charles Duxbury at charles.duxbury@dowjones.com