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Norway Monetary Policy June 2021

Norway: Norges Bank leaves rate unchanged in June; hints at September hike

At its monetary policy meeting on 16 June, the Executive Board of Norges Bank once again voted to keep the sight deposit rate at its record low of 0.00%. The unanimous decision met market analysts’ expectations and marked the ninth consecutive hold.

The Bank noted that although Covid-19 infection rates increased at the beginning of the year and prompted tighter restrictions that set back the recovery, the vaccine rollout accelerated in the spring, enabling the reopening of the economy. Consequently, the unemployment rate has fallen—although it remains high—and activity is rebounding faster than initially expected, despite lingering uncertainty over the pandemic. Moreover, the Bank noted that inflation has slowed down, projecting it to remain below its target in the coming years on expected moderate wage growth and the appreciation of the krona. All in all, after assessing the balance of risks and the economic outlook, the Bank decided to continue its expansionary policy stance.

Looking ahead, the Bank reiterated its hawkish tone from the previous meeting, stating that the “further easing of Covid-related restrictions will help a return to more normal economic conditions”. Against this backdrop, the Bank forecast a gradual rise in rates starting in the autumn, stating “the policy rate will most likely be raised in September”—a higher rate path than the one projected in March. As such, most of our panelists see the sight deposit rate ending this year at 0.25%.

The next monetary policy rate decision is set to be announced on 19 August.

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