The executive board of Norway’s central bank, Norges Bank, has decided against another cut in its key lending rate, at least for now. Despite a recent rash of negative economic indicators, the board announced Thursday that there was no need for further stimulus right now.
That means the central bank’s already record-low “key policy rate” will remain unchanged at 0.75 percent. There had been speculation that the board would trim it by another quarter-point, after recent weeks have seen a decline in housing prices, a rise in the unemployment rate, a decline in consumer spending and business confidence and another decline in oil prices.
A vast majority of analysts and economists polled by newspaper Dagens Næringsliv (DN) earlier this week, however, had advised against another interest rate cut despite the stream of economic bad news. “Both monetary and fiscal policy are reasonably well-suited for the current economic situation,” Knut Røed, senior researcher at Frischsenteret told DN on Wednesday as the board met to discuss interest rates. Professor Hilde C Bjørnland of Norwegian Business School BI also saw no need for another cut, arguing that the current low interest rate level and government policy already were expansive enough.
The bank board recognized that the effects of the fall in oil prices and decline in oil investment are “gradually becoming more evident” and that unemployment “has edged up.” That was expected, however, while household consumption has been lower than expected.
Norway’s currency, the krone, meanwhile, is weaker than expected, with one US dollar costing as much as NOK 8.62 on Wednesday. The krone immediately strengthened a bit on news Thursday that there would be no additional interest rate cut, but its overall weakness (NOK 8.57 against the US dollar Thursday morning) is helping Norway’s exports and industries like seafood and tourism.
As political debate continues over the government’s expansive state budget proposal, the board also noted that more expansionary fiscal policy will “contribute to fueling demand for goods and services.”
Norway’s inflation rate of 3.1 percent in September, meanwhile, has been “in line with projections.” The board ultimately concluded that “an overall assessment of new information implies that the key policy rate be kept unchanged.” Economists aren’t ruling out the prospect that it may eventually be lowered again later this winter.