Central bank: ‘No rise in interest rates’

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Norway’s central bank decided against raising interest rates on Wednesday, opting to keep its key policy rate at 1.75 percent. The executive board of the Bank of Norway (Norges Bank) cited a need for stability and a goal of keeping rates within an “interval” from 1.25 to 2.25 percent. “We have chosen to keep the key policy rate unchanged at this meeting,” said bank governor Svein Gjedrem.

The central bank has raised rates twice in recent months, most recently in mid-December, and analysts had been fairly split over whether another interest rate hike was imminent.

It wasn’t, following the regular meeting of the executive board that deals with interest rate evaluation. Board members felt that developments in the Norwegian economy have been in line with projections, and that the last quarter-point rate hike was enough for now.

“The recovery in Norway and abroad has taken hold, and Norges Bank has raised the key rate in two increments to 1.75 percent,” stated the bank in a press release. That’s squarely in the middle of the bank board’s desired range.

Analysts have repeatedly noted the dilemma faced by the bank board: The Norwegian housing market remains hot, with prices up 13 percent last year, and that could call for a rate hike to slow housing inflation. At the same time, however, Norwegian industry is already challenged by a strong Norwegian krone, and another rate hike would strengthen it further, making exports even more expensive and putting Norwegian producers at a competitive disadvantage.

The bank noted that inflation is now slightly below 2.5 percent, economic activity is rising, housing inflation is high and household demand increasing. Exports “appear to be picking up somewhat faster than expected,” while petroleum investment is lower than expected.

Bank governor Svein Gjedrem noted that unemployment is relatively low, “but both employment and the labour force have decreased somewhat further than anticipated.”

Deliberations ended with the bank opting for the status quo. Several analysts expect new, likely modest, rate hikes later in the year.

Views and News from Norway/Nina Berglund
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