By Charles Duxbury 
 

STOCKHOLM--One of the six interest-rate setters at Sweden's central bank said Wednesday that a lower main interest rate would have helped the Riksbank meet its target on inflation as well as helping to bring down unemployment.

Unemployment in Sweden recently rose above 8% while the Nordic state's consumer price index fell 0.2% in February, putting inflation well below the Riksbank's 2% target.

"A more expansionary economic policy could have counteracted the low demand pressure in the Swedish economy and contributed to a more positive development of the labor market," Karolina Ekholm said in a speech in the Swedish capital.

She said that concerns over financial stability had limited the willingness of the majority of her executive board colleagues to cut the main rate below the current 1%.

A four-person group including Riksbank Governor Stefan Ingves has warned that keeping rates too low for too long would lead households to borrow too much leaving them vulnerable if house prices then fall or interest rates then rise.

The cost of using the repo rate to influence house prices and household debt, in the form of inflation below the target and unemployment, is under current circumstances too high, Ms. Ekholm said.

It would be justified if Sweden were seeing a credit boom throughout the economy, Ms. Ekholm said. "But this is not what we are seeing," she said.

"All in all, credit growth is relatively low in the Swedish economy," she said.

Ms. Ekholm is regarded as one of two doves on the executive board at the Riksbank. Along with colleague Lars Svensson she advocated a cut to the central bank's most important interest rate last month when the majority voted through an unchanged rate of 1%.

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