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Tuesday, February 27, 2024

Interest rates set to rise ‘cautiously’

Norway’s central bank announced Thursday morning that its executive board is poised to raise interest rates at the end of this summer. The bank’s key policy rate will remain at its current record-low level of 0.5 percent until then.

Norway’s krone quickly strengthened after the country’s central bank announced that it probably would boost interest rates after the summer holidays. PHOTO:

The board of Norges Bank seemed to downplay the effects of a new government regulation on monetary policy that puts Norway’s inflation target at 2 percent instead of the previous 2.5 percent. “The new regulation will not result in significant changes in the conduct of monetary policy,” the board stated.

It claimed instead that the “inflation targeting regime is flexible, and weight is given to developments in output and employment.” The lower numerical target, the bank board stated, is “of little importance for the interest rate outlook in the coming period.”

Norway’s ongoing economic recovery from the ill effects of the oil price dive four years ago, however, will play a major role. The bank described current economic growth as “somewhat stronger than expected.” While underlying inflation is low and keeping interest rates low as well, Norway’s equivalent of the US’ Federal Reserve Board believes rising capacity utilization “will probably push up price and wage inflation further out.”

That’s what likely will lead the Norwegian central bank board to finally boost interest rates for the first time in several years, and earlier than the previously announced time estimate of late in the year. “The outlook for the Norwegian economy suggests that it will soon be appropriate to raise the key policy rate,” the board stated in its press release Thursday morning, adding, however, that “the uncertainty surrounding the effects of a higher interest rate suggests a cautious approach.”

Some analysts and economist have already been predicting that interest rates will be boosted at the central bank’s meeting in September. According to Øystein Olsen, governor of  Norges Bank, the executive board’s “current assessment of the outlook and balance of risks suggests that the key policy rate will most likely be raised after summer 2018.”

Norway’s currency, the krone, quickly strengthened on the news. It was trading against the US dollar at around NOK 7.80 earlier this month. On Thursday morning, within a half-hour of the bank’s announcement at 10am, one US dollar cost NOK 7.68. Berglund



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