Norway Monetary Policy December 2020


Norway: Norges Bank holds rates at zero in December; turns more hawkish

December 17, 2020

At its monetary policy meeting on 17 December, the Executive Board of Norges Bank unanimously decided to keep the sight deposit rate at 0.00%, marking the fifth consecutive meeting of unchanged rates. The decision follows 150 basis points of easing this year, culminating in May’s move to drop rates to zero.

The Bank’s wait-and-see approach came amid higher Covid-19 infection rates and stricter containment measures, which have weighed on activity toward the end of the year. Nevertheless, in its communiqué the Board maintained its cautiously optimistic tone, noting that “there are prospects for a faster upturn through 2021”, while acknowledging that “there is substantial uncertainty surrounding the economic recovery ahead“. As such, the Bank to decided err on the side of caution and maintain interest rates at zero, supported by suppressed inflationary pressures in November.

Looking forward, the Bank once again stated that based on its “current assessment of the outlook and balance of risks, the policy rate will most likely remain at today’s level for some time ahead”. However, it updated its projected policy rate path, which showed relatively higher rates for 2022 onward compared with the September report.

Moreover, this month Norges Bank produced two additional economic forecasts to complement its baseline scenario. The upside projection sees a low infection rate, reduced restrictions on daily life and a six-month timeline for vaccinating the population, while the downside scenario sees a weaker return of economic activity amid stricter containment measures and a slower vaccine rollout. As such, the Bank now projects mainland GDP to grow between 2.1% and 4.5% in 2021, and between 2.0% and 3.2% in 2022. Inflation is set to range between 2.0% and 2.4% in 2021 before falling to 1.3–1.6% in 2022.

Regarding the outlook, analysts at Swedbank commented:

“We continue to think that the forceful economic rebound together with a continued worry for financial stability will lead to a first rate hike already in the second half of 2021. What will lead Norges Bank to act quicker is to see proof that the economic upswing is actually taking place. This will reduce uncertainty. We remain confident in this approach.”

The next monetary policy meeting is scheduled for 21 January.

FocusEconomics Consensus Forecast panelists currently project the sight deposit rate to end 2021 at 0.02% and 2022 at 0.30%.

Author:, Economist

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