Norway Keeps Rates at Record Low to Back Recovery From Oil Slump

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Norway Keeps Rates at Record Low to Back Recovery From Oil Slump


Category: Accounting / Financial

Norway’s central bank kept its benchmark interest rate at a record low to help support an economic rebound from the worst oil-industry crisis in a generation.

 The bank left the key deposit rate at 0.5 percent on Thursday, without giving updates on its forecasts since it’s a so-called interim meeting.

Norges Bank still appears to be “relaxed on subdued inflation,” Erica Blomgren, chief strategist for Norway at SEB AB, wrote in a Tweet.

Governor Oystein Olsen said the “outlook and the balance of risks for the Norwegian economy do not appear to have changed substantially since the September Report,” in a statement.

The economy of western Europe’s largest oil producer is recovering from a protracted slump in its petroleum industry. But with inflation well below target and the housing market cooling rapidly, the central bank indicated at its September policy meeting that its first rate increase since 2011 probably won’t happen until 2019.

According to Capital Economics, a cooling housing market and low inflation suggest the key policy rate might remain unchanged at the current level until 2020.

Given Norway’s reliance on trade, early tightening would be risky since stimulus is still running full throttle in the country’s key export markets, Sweden and the euro zone.

“The domestic interest rate cannot be set without regard to the level of external interest rates,” Olsen said in a speech in Oslo on monetary policy. “The room for maneuver in monetary policy is further constrained in periods when external interest rates are close to or below zero.”

Economic data since September has been at the lower end of the central bank forecast and price growth is about a percentage point below the 2.5 percent target.

“The improvement in the labor market appears to be continuing. Inflation has been slightly lower than projected, while the krone exchange rate is somewhat weaker than projected,” it said in a statement issued after a unanimous decision by the board.

The central bank will give its next guiding on monetary policy at the Dec. 14 rate decision.

Source: Bloomberg