BRUSSELS (MNI) – The central bank of Norway on Wednesday as
expected left its key policy rate unchanged at 2.25% for the fourth time
in a row, but said rates likely would rise again in a year’s time.
“Based on Norges Bank’s current assessment, the key policy rate
will be kept at the current level for some time ahead,” said Governor
Oystein Olsen.
“The prospects of both somewhat weaker growth and lower inflation
suggest that the key policy rate should not be raised further in the
coming months,” the bank’s Executive Board said in a statement.
“Inflation is low in Norway, but growth in the Norwegian economy
remains robust. There is an unusually high level of uncertainty
surrounding developments ahead. The analyses in the October 2011
Monetary Policy Report suggest that the key policy rate will increase
again in a year’s time,” the Executive Board said.
Revising down its projected rate path from its report in June, the
Executive Board decided that the key policy rate should be kept between
“1.75%-2.75%” until the publication of its next report on 14 March 2012,
“unless the Norwegian economy is exposed to new major shocks.”
Any increase in rates would be gradual so as to avoid an
over-appreciation of the Norwegian krone, said the bank.
“An appreciably faster rise in the interest rate at home than
abroad would increase the risk of a krone appreciation, resulting in
inflation that is too low,” said the bank.
“Low inflation suggests in isolation that the key policy rate
should be lowered. But the key policy rate is already low. Capacity
utilisation is close to a normal level. Low interest rates over time
entail the risk of a buildup of imbalances. This suggests that the key
policy rate should gradually be raised towards a more normal level.”
Norges Bank also signaled that it would be prepared to cut its key
policy rate if need be. “If the turbulence abroad intensifies and the
outlook for growth and inflation weakens further the key policy rate may
be reduced,” said Olsen.
Although growth in the Norwegian economy remains “robust,” thanks
to the petroleum sector and a strong housing market, “turbulence and
weaker prospects abroad are also affecting the outlook for the Norwegian
economy,” according to Olsen.
Norway’s central bank said that it considered that “advanced
economies are likely facing an amplified and prolonged downturn,” and
noted that “uncertainty related to sovereign debt problems and the
increased risk of a renewed downturn in the global economy are reflected
in financial markets.”
Inflation is expected to range between 1.25-1.5% until summer next
year, considerably lower than Norges Bank’s 2.5% target.
Brussels bureau: +32495228374; pkoh@marketnews.com
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