Norges Bank Cuts Rate to 1.5% Following Downward Projection Revision

Stockholm (Ekonamik) – “Norges Bank’s Executive Board has decided to raise the policy rate by 0.25 percentage point to 1.50 percent,” the Norwegian central bank announced.

The decision was motivated by purely domestic concerns. “the overall outlook and balance of risks suggest a slightly higher policy rate. Underlying inflation is close to the inflation target. Growth in the Norwegian economy remains solid, and capacity utilisation is somewhat above a normal level. This suggests in isolation a higher policy rate. A higher policy rate may also mitigate the risk of a renewed acceleration in debt growth and house price inflation.”

This bullish outlook is confirmed by the technical projections Norges Bank published in its Monetary Policy Report. However, as the figure below shows, convergence seems to be taking place with Norges Bank finally starting to revise its forecasts downwards..

However, the Norwegian authority did go some way to communicate it was not out of touch with its industry’s trends. “At the same time, foreign interest rates are very low, and there is considerable uncertainty surrounding global growth prospects,” it noted. Clearly, the observation had important implications. “This suggests a cautious approach to interest rate setting.

The decision confirmed analyst forecasts. “As expected, the Bank of Norway raised its key rate by 25 basis points to 1.50 per cent at yesterday’s interest rate announcement,” commented Alexandra Igel at Swedbank Research the day after. “At the same time, the interest rate path was revised down, citing, among other things, weaker global growth and softer central banks, which indicates that the increase cycle is now over for this time,” she added. “Yesterday’s increase was made, among other things, with reference to strong domestic growth and inflation around the target. The Norwegian krone strengthened after the message but then lost. The krona strengthened and Swedish interest rates rose slightly.”

Video from Youtube

Image from Norges Bank


Please enter your comment!
Please enter your name here