Norway: Norges Bank leaves rate unchanged at 0.50%
March 14, 2017
At its 14 March monetary policy meeting, Norges Bank’s Executive Board decided to leave its key policy rate at an all-time low of 0.50%, where it has been for a year now. The decision met market expectations and came amid a backdrop of receding inflationary pressures and adverse ripple effects of the global oil price slump on the economy.
Inflation has declined rapidly over the last few months, coming in at 2.6% in February, just a notch above the Central Bank’s target of 2.5%, with inflationary pressures lessening thanks to the gradual appreciation of the krone. Moreover, wage growth in 2016 was slower than expected, as the labor market is going through structural changes following the oil sector crisis, reducing demand-pull inflation. However, the Bank saw no urgent need to lower the policy rate as the economy has picked up some steam in Q4 2016. In addition, housing prices are still rising rapidly and additional easing of monetary policy would increase the risk of the real estate market overheating.
The Bank recently revised its 2017 growth forecast to 1.0%, up from 0.5% in its December projection, and is now forecasting inflation of 2.2% in 2017 (December forecast: 2.3%). The communique’s tone was rather dovish regarding the near and medium term. The Executive Board sees more need for monetary stimulus going forward as capacity utilization is below normal levels and inflation is lower than expected. In addition, the appreciating krone risks dragging on Norway’s external sector, hurting growth.