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Norway Monetary Policy December 2018

Norway: Norges Bank keeps rate unchanged in December despite accelerating inflation

In line with market analysts’ expectations, Norges Bank announced on 13 December that it was keeping the sight deposit rate unchanged at 0.75%. Two monetary policy meetings earlier, on 25 September, the Bank hiked this key interest rate for the first time in eight years due to reduce runaway inflation risks.

Inflation has been on the rise lately, with the headline rate reaching 3.5% in November, up from October’s 3.1%. This is the highest rate since December 2016 and well above above Norges Bank’s 2.0% target. Moreover, economic growth has remained robust recently, although it did slow in the August–October period (the latest period for which GDP data is available). In addition to these two trends, which, taken together, would normally make the Central Bank lean towards further rate rises, Norges Bank also noted that interest rates have been low for “a long time”, meaning inflation could accelerate and financial imbalances increase if they remain low for much longer. However, Norges Bank also stated that raising rates too quickly could stifle economic growth, lead to higher unemployment and overly weaken inflation pressures. Moreover, it said persistent global trade protectionism and uncertainty related to Brexit cloud economic prospects for Norway.

All in all, Governor Øystein Olsen said that “our current assessment of the [economic] outlook and the balance of risks suggest that the policy rate will most likely be raised in March 2019”. The next monetary policy decision will be taken on 24 January.

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