Norway Monetary Policy May 2018

Norway

Norway: Norges Bank keeps policy rate unchanged at 0.50% in May

May 3, 2018

At its meeting on 3 May, Norges Bank’s Executive Board decided to stand pat and left the key policy rate steady at its all-time low of 0.50%, where it has been since March 2016. The decision was widely in line with market expectations and came as the economic recovery and inflationary pressures remained broadly unchanged from March, when the Bank held its last meeting.

The economic picture continues to look optimistic as accommodative financial conditions, a tighter labor market, higher hydrocarbon prices and expansionary fiscal policies help shore up growth. Despite the economic momentum, inflationary pressures remain largely subdued, and underlying inflation is below target. That said, inflation should pick up in the near term on the back of higher wages and a narrower output gap—the difference between mainland GDP (which excludes petroleum activities and related ocean transport) and projected potential mainland GDP. The Bank felt a rate hike was not yet necessary, as current fundamentals continue to support growth and the balance of risks was stable from March.

The Bank’s forward guidance was broadly unchanged in May. It largely sees the economic trajectory as being in line with its expectations laid out in the March monetary policy report and again noted that a rate hike would likely come after the summer. A majority of FocusEconomics panelists have penciled in a rate hike in the third quarter. Future rate hikes will likely be gradual to not overburden households, especially amid elevated household debt levels.

FocusEconomics Consensus Forecast panelists expect the key policy rate to end 2018 at 0.72%. For 2019, panelists expect the rate to end the year at 1.23%.


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Norway Monetary Policy May 2018

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


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