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Norway Monetary Policy June 2020

Norway: Norges Bank holds rates steady in June

At its monetary policy meeting on 18 June, the Executive Board of Norges Bank unanimously decided to hold the sight deposit rate at 0.00%. The decision follows 150 basis points of easing this year, culminating in May’s move to drop rates to zero.

The decision to hold rates steady came amid heightened uncertainty due to the ongoing coronavirus pandemic. In its communiqué, the Bank struck a somewhat upbeat tone, commenting that, since the easing of containment measures in May, “activity has rebounded faster than anticipated, and unemployment has fallen more than expected”. However, activity remains significantly below pre-pandemic levels; as such, the Bank deemed it necessary to maintain interest rates at zero given the role of accommodative monetary policy in normalizing economic output and unemployment levels.

Looking forward, the Bank is set to keep rates at the current level this year and next, stating that the “current assessment of the outlook and balance of risks suggests that the policy rate will most likely remain at today’s level for some time ahead”. Norges Bank also provided new forecasts for GDP, displaying a less pessimistic view for the current year. It now forecasts Mainland GDP to shrink 3.5% in 2020 (previously reported: -5.2% year-on-year), before rebounding 3.7% in 2021. Additionally, the Bank sees inflation ending the year at 1.6% (previously reported: 1.2%) and 2021 at 3.3%.

Regarding the outlook, James Smith, an economist at ING, commented:

“We don’t expect the central bank to add further stimulus, not least because the options are fairly limited. In a speech last year, [Norges Bank Governor] Olsen noted that neither negative rates nor quantitative easing were really viable options for Norway. […] In short, we don’t expect any further easing for the Norges Bank. But like other central banks, we suspect rate hikes won’t be on the agenda until 2022 at the earliest.”

The next monetary policy meeting is scheduled for 20 August.

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