The cost of borrowing money in Norway is expected to stay low at least through early next year, following the central bank board’s decision on Wednesday to keep the country’s key lending rate unchanged at 1.5 percent.
Øystein Olsen, governor of Norges Bank, said the bank’s so-called “key policy rate” was “being kept at a low level because inflation is low and global interest rates are at very low levels.”
The decision was in line with the expectations of several Norwegian economists who had warned that raising the historically low interest rate level would further strengthen the already super-strong Norwegian currency, the krone. The current strength of the krone makes for an unfavourable exchange rate against other country’s currencies, and threatens Norwegian exports because locally produced goods become even more expensive when marketed abroad.
Olsen noted that economic growth among Norway’s trading partners is weak, while uncertainty surrounding international economic developments is high. Growth in Norway, by contrast, is “solid,” according to Norges Bank’s assessment ,and the krone has appreciated.
“Developments in the Norwegian economy give reason to believe that inflation will gradually pick up,” Olsen said. Unless the Norwegian economy is exposed to “new major shocks,” the central bank’s executive board believes the key policy rate should be kept between 1 percent and 2 percent until mid-March.
Olsen offered a further hint about likely interest rate dynamics, saying that the key lending rate “should be kept at today’s level into next year, followed by a gradual increase towards a more normal level.”
Ida Wolden Bache, senior economist at Handelsbanken Capital Markets, was among those supporting the decision to keep interest rates at current levels.
“The growth outlook internationally isn’t better, inflation is lower and the krone is still strong,” she told newspaper Dagens Næringsliv (DN) this week.
Views and News from Norway/Nina Berglund
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