Adds central bank governor comment in paragraph 5, analyst comment in paragraph 9.

By Simon Johnson

STOCKHOLM, May 7 (Reuters) - Sweden's central bank kept its key rate unchanged at 1.75% as expected on Thursday and said that while the risk of higher inflation had increased somewhat due to the war in the Middle East, it could wait before adjusting its policy.

The Riksbank has been in wait-and-see mode since cutting interest rates by a quarter percentage point in September last year. However, while the policy stance has not changed, the economic context has.

After overshooting the 2% target last year, underlying inflation eased to 0% in April, its lowest in 30 years, in part due to a temporary cut in VAT on food but a stronger crown and modest wage agreements have also played a role.

Low inflation makes Sweden an outlier in Europe.

Sweden's first-quarter economic growth was also weak and the Riksbank said the current benign conditions meant it did not need to hurry into rate hikes despite worries the Middle East conflict will push up prices ahead.

"Developments indicate we should be vigilant," Riksbank Governor Erik Thedeen told reporters. "The risks have increased somewhat, but the starting point gives us a bit more time."

HIGH UNCERTAINTY

Uncertainty is high, however, not least about how long the war will last and how much and when its impact will be felt on growth and inflation.

Even a quick resolution would be unlikely to completely eliminate bottlenecks in global supply chains, with Governor Thedeen pointing to disruptions to deliveries of fertilizers, aluminium and helium as well as damage to infrastructure in the Gulf.

Analysts in a Reuters poll had been unanimous in expecting no change in Sweden's policy rate this time and remained dovish after the rate announcement.

"Should the conflict in the Middle East be resolved and oil prices retreat faster than current future prices, we would

not rule out a rate cut after the summer, especially if the Swedish economy continues to surprise on the downside," Swedbank said in a note.

Other central banks, however, are already experiencing and responding to higher inflation.

On Thursday Sweden's neighbour Norway hiked by a quarter point, while Australia's central bank raised rates for a third time this year on Tuesday.

Markets see a chance of policy tightening in Sweden by year-end. 0#RIBA=