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Norway Monetary Policy September 2020

Norway: Norges Bank maintains rates at zero in September meeting

At its monetary policy meeting on 23 September, the Executive Board of Norges Bank unanimously decided to keep the sight deposit rate at 0.00%, marking the third consecutive meeting of unchanged rates. The decision follows 150 basis points of easing this year, culminating in May’s move to drop rates to zero.

The verdict echoed the decisions made in June and August, with heightened uncertainty due to the ongoing pandemic driving the Bank’s wait-and-see approach. This came despite a cautiously optimistic tone in its communiqué, with the Board noting that activity has picked up through the summer as the pandemic has been brought under control domestically. GDP grew 3.1% and 1.1% in month-on-month terms in June and July, respectively. However, GDP still remains significantly below pre-pandemic levels which, along with a recent uptick in daily new cases and the reimposition of localized containment measures that could suppress consumer spending going forward, prompted the Bank to maintain interest rates at zero.

Looking forward, the Bank stated that its “policy rate forecast is little changed since June and implies a rate at the current level over the next couple of years”, thus taking a slightly more cautious tone than in the previous two meetings. Norges Bank provided no new forecasts for GDP, but commented that “developments were in line with the projections in the June Report”, in which it forecast mainland GDP to shrink 3.5% in 2020 before rebounding 3.7% in 2021.

Regarding the shift toward a more cautious tone, Petr Krpata, an economist at ING, commented:

“This rhetoric is justified, in our view, given the rising Covid-19 related uncertainties, the re-rating of global growth prospects by the market and the subsequent limited upside to oil prices. With such risks rising, the change in the NB’s bias (back towards more hawkish / constructive) is unlikely to happen anytime soon.”

This is a viewpoint shared by the FocusEconomics Consensus Forecast panel, which sees rates staying at zero for the rest of 2020.

The next monetary policy meeting is scheduled for 5 November.

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