Norway’s central bank left the country’s key policy rate unchanged on Thursday at 0.0 percent, despite higher underlying inflation than expected and much higher housing prices. Rates will “most likely” be raised, however, later this year and “somewhat faster” than earlier thought.
Norges Bank‘s committee in charge of monetary policy and financial stability voted unanimously against any rate rise now, according to a press release issued Thursday morning. They noted how the Covid-19 pandemic “has led to a sharp downturn in the Norwegian economy:” While economic activity has picked up since last spring, when they slashed interest rates down to zero, “the recovery is being held back by higher infection rates and strict containment measures.”
The bank committee stressed “the contribution of low interest rates to speeding up” a recovery. Committee members think it will “take time” for employment and unemployment to return to pre-pandemic levels. They acknowledged that underlying inflation is still above its target, “but has moderated in recent months.”
Since most Norwegians are expected to be vaccinated by the end of summer, however, economic recovery is expected to pick up. Norges Bank Governor Øystein Olsen stated that it will thus “be appropriate to raise the policy rate gradually,” probably in the latter half of 2021. “This implies a somewhat faster rate rise than predicted in December,” the bank board concluded.
Norway’s currency, the krone, strengthened on the news. It cost around NOK 8.50 to buy one US dollar earlier in the day. By 11am, it cost NOK 8.42.