Norges Bank won’t follow Europeans

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The European Central Bank cut its already-low key interest rate last week but Norway’s own central bank didn’t follow along. The board of Norges Bank decided on Wednesday to keep its key lending rate unchanged at 1.5 percent.

European Central Bank

The European Central Bank in Frankfurt, which sets interest rates for the troubled euro, cut its key lending rate last week in the hopes of stimulating the economies of EU members, but the Norwegians kept their own rate unchanged Wednesday, at a full point higher. PHOTO: newsinenglish.no

“Overall developments in the Norwegian economy have been broadly in line with expectations,” Jan F Qvigstad, deputy governor of the central bank, announced Wednesday afternoon. “The key policy rate has therefore been left unchanged.”

Norway doesn’t have anywhere near the economic problems faced in Europe, where central bankers decided to tackle record high unemployment and low inflation by trimming their key rate of just 0.75 percent down to 0.5 percent. The reduction had prompted some speculation that Norway’s central bank might trim its rates, too, to narrow the gap and reduce the upward pressure already on Norway’s strong currency, the krone. A strong krone can hurt Norway’s ability to compete internationally.

But Qvigstad and his fellow bank board members think global growth remains “robust” even though growth prospects in the euro area have “weakened somewhat.” The board noted that inflation in Norway has been “slightly lower than expected” and there are prospects that wages will rise “somwhat less” than projected but the currency has “depreciated” from even higher levels earlier and household debt continues to rise from a high level.

All that prompted the board to resist trimming rates like their European colleagues did. They felt their key policy rate “is low because inflation is low and because external interest rates are very low.” The decision to keep Norway key lending rate at 1.5 percent was in line with most analysts’ expectations. The release of the government’s revised state budget on Tuesday didn’t seem to affect interest rates either.

Qvigstad noted that the key policy rate was projected in March to remain at around the current level for the next year before being raised gradually towards a “more normal” level. “There is no basis for changing this assessment now,” Qvigstad said.

Views and News from Norway/Nina Berglund

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