Norway’s central bank followed other countries’ this week in keeping their key interest rates unchanged even as inflation rises. Raising rates could have stemmed price hikes, but also could have further weakened Norway’s currency, the krone.
“Inflation is too high, and the rapid rise in business costs in recent years will contribute to keeping inflation elevated ahead,” said Ida Wolden Bache, governor of Norges Bank when she announced the central bank’s last interest rate decision before the summer holidays on Thursday. She also noted that “new information indicates that inflation pressures are slightly stronger than we had anticipated earlier.”
That prompted Norges Bank’s committee charged with monetary policy and financial stability to opt against the quarter-point rise many had expected before summer. The committee’s decision keeps Norway’s policy rate at 4.25 percent, at least until their next meeting in August. Norway’s overnight lending rate remains at 5.25 percent and its reserve rate at 3.25 percent.
Bache warned once again, however, that interest rates may rise later this year. That’s because of “uncertainty about future economic developments,” noted the committee, prompting her to add that “if developments turn out as currently envisaged, the policy rate will be raised at one of the forthcoming monetary policy meetings.”
Norway’s krone (crown) had been strengthening, especially after the US and Israel launched a war against Iran that closed the Strait of Hormuz and sent oil prices soaring. That always boosts an oil-fueled economy like Norway’s, but now oil prices are falling and one US dollar cost nearly NOK 9.6 on Thursday morning, compared to around NOK 9.2 a few weeks ago. The krone weakened further to NOK 9.65 against the dollar shortly after the Norwegian central bank’s interest rate announcement.
Stability is a major goal for Bache and her colleagues, who worry that inflation has been above the “target” of just 2 percent. They worry that the “conflict” in the Middle East is still creating uncertainty about the price of oil and other commodities, that wage growth will continue (not least given Norwegian wage settlements this spring of well over 4 percent this spring) and that mainland (as opposed to offshore oil and gas) growth has been “slightly weaker” than anticipated.
Several Norwegian economists had predicted that the central bank would keep its policy rate unchanged. Both Kjersti Haugland at DNB Carnegie and Marius Gonsholt Hov at Handelsbanken in Oslo expected that the central bank would hold off on an interst rate rise, for now.
NewsinEnglish.no/Nina Berglund
