Norway Monetary Policy September 2019


Norway: Norges Bank goes against the tide to raise rates in September

September 19, 2019

The executive board of Norges Bank unanimously decided to raise the sight deposit rate to 1.50% from 1.25% at its monetary policy meeting on 18 September. Although the decision met market expectations, a number of analysts had projected that the Bank would stand pat again after the Bank kept rates unchanged at its previous meeting in August.

September’s decision came despite a backdrop of moderating inflationary pressures: Inflation dropped to 1.6% in August from 1.9% in July, falling further below the Bank’s 2.0% target rate. Subdued inflationary pressures were mainly driven by lower energy prices in recent months. Meanwhile, domestic economic growth has performed well—in line with the Bank’s projection— as a tight labor market and strong investment powered domestic demand. In addition, elevated household debt and historically high house prices put further pressure on the Bank to raise rates in September.

Nevertheless, the Bank’s decision to hike rates comes despite monetary loosening from key central banks around the world, heightened trade protectionism, uncertainty over Brexit, geopolitical rifts in the Middle East, and a moderating global economy. Going forward, the Bank took a more dovish stance and noted “the key policy rate will most likely remain at this level in the near future”, as the Norwegian economy grows at a healthy clip and the capacity utilization rate is believed to be above its long-run average. Increasing risks to the global growth outlook will likely keep the Bank on the sidelines for the remainder of the year.

The next monetary policy decision will be taken on 24 October.

FocusEconomics Consensus Forecast panelists see the sight deposit rate ending 2019 at 1.50%. Meanwhile, the panel expects the sight deposit rate to end 2020 at 1.66%.

Author:, Economist

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Norway Monetary Policy Chart

Norway Monetary Policy September 2019

Note: Sight deposit rate in %.
Source: Norges Bank (NB).

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