Norway: Norges Bank keeps rate unchanged in January but leaves door open to a March hike
In line with market analysts’ expectations, Norges Bank announced on 24 January that it was keeping the sight deposit rate unchanged at 0.75% amid high but controlled inflation and robust economic activity. The Central Bank had raised the key interest rate in September for the first time in eight years to reduce risks of runaway inflation.
Inflation was steady at 3.5% in December, the same as in November but far higher than Norges Bank’s 2.0% target. However, core inflation, which is adjusted for tax changes and exclude energy prices, ticked down to 2.1% from 2.2% in November. In terms of economic activity, growth was “solid” in October–November, according to Norges Bank. Overall, the Central Bank appears to still have room to raise interest rates in March, as it said it would likely do at its last monetary policy meeting on 13 December. However, risks to tightening monetary policy in Norway are largely emanating from abroad: Economic growth among the country’s largest trading partners is slowing, there is still no agreement on the UK’s exit from the EU, oil prices have weakened in recent months, and global trade protectionism remains high.
All told, the forward-looking takeaway is that Norges Bank still believes “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 21 March.