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Norway Monetary Policy September 2021

Norway: Norges Bank delivers first rate hike in September meeting

At its monetary policy meeting on 22 September, the Executive Board of Norges Bank unanimously voted to raise the sight deposit rate to 0.25% from the record low of 0.00%—where it had been since May last year. The decision was expected by market analysts.

Norges Bank’s assessment of recent economic developments—activity has returned to pre-pandemic levels, the unemployment rate has fallen further and capacity utilization has increased—showed there was room to tighten financial conditions, with an ultra-accommodative policy stance no longer necessary. The decision to begin normalizing policy was partly aimed at countering a build-up of financial imbalances. Looking at the balance of risks, the Bank acknowledged the threat posed by new variants of the virus, and that capacity constraints could lead to quicker-than-expected wage and price inflation, but added that the risk of inflation becoming too high was limited.

Regarding forward guidance, the hawkish tone of the previous meetings continued. The communiqué stated that “based on the Committee’s current assessment of the outlook and balance of risks, the policy rate will most likely be raised further in December”. Moreover, the Bank added that the policy rate path is now slightly higher than it was in June’s report—due to higher capacity utilization and higher inflation expectations. Currently, the majority of our panelists have penciled in another 25 basis-point hike and the sight deposit rate to end the year at 0.50%.

The next monetary policy rate decision is set to be announced on 4 November.

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