Norway: Norges Bank leaves rate unchanged at 0.50%
December 15, 2016
At its 15 December policy meeting, Norges Bank (NB) decided to leave its key policy rate at the all-time low of 0.50%, as was expected by market participants.
Norges Bank described the global economic environment as moderately improving, but with persistent low inflation and low policy rates in Norway’s main trading partners. As oil prices had risen to a level slightly higher than expected, the krone had appreciated more than foreseen, the Bank further stated. This prompted it to leave the policy rate at a low level.
Norway’s economy had not recovered from the oil price slump as fast as expected by the last monetary policy review in September 2016, NB acknowledged. In light of still subdued investments in the petroleum industry, fiscal policy will remain expansionary. In the labor market, unemployment has been stable in the last three months but wages have grown at a sluggish pace. The Central Bank cut its forecast for total GDP growth in 2017 to 0.5% from the projected 1.3% in September and for mainland GDP to 1.5% (September: +1.8%).
Regarding prices in Norway, the Bank stated that in recent months inflation had been lower than projected and that the recent appreciation of the krone would further amplify the downward trend. However, NB highlighted the heated situation in the housing market, where housing prices and household debt have been surging. For 2017, the Bank now projects consumer prices to increase 2.3%, down from the 2.6% forecasted in September.
Against this backdrop, interest rates are projected to remain low in the coming years and a future decrease of the key policy rate has become more likely. While the expansionary monetary policy could support the Norwegian economy, continuously low interest rates are increasing the vulnerability of the financial system, the Bank concluded.