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Norway Monetary Policy May 2021

Norway: Norges Bank keeps rate unchanged in May

At its monetary policy meeting on 6 May, the Executive Board of Norges Bank met market analysts’ expectations and unanimously voted to leave the sight deposit rate at its record low of 0.00%, marking the eighth consecutive hold.

On the one hand, the Bank noted the continued pickup in activity since spring last year, and expects that the majority of the population will be vaccinated by the end of this summer, which should further boost momentum. However, the decision to hold was influenced by tighter Covid-19 restrictions in recent months due to higher daily infection rates, which have restrained the recovery amid a higher-than-expected unemployment rate. Against this backdrop, the Bank assessed that loose monetary policy was still necessary as uncertainty over the recovery remains elevated.

Looking forward, the Bank reiterated its hawkish tone from the previous meeting, stating that given the “current assessment of the outlook and balance of risks, the policy rate will most likely be raised in the latter half of 2021”.

Commenting on the Bank’s potential future policy moves, James Smith and Petr Krpata, economists at ING, noted:

“Policymakers have reiterated their intention to hike rates before the end of the year, and the only remaining question is whether this happens in September or December. Of course this partly depends on the main inputs into Norges Bank’s fairly mechanical interest rate setting – chiefly oil, but also things like foreign market rates. […] For now, we’ve pencilled in a December move.”

The next monetary policy rate decision is set to be announced on 17 June.

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