Norway: Norges Bank stays put in June
June 22, 2017
At its 22 June 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 over a year now. The decision met market expectations and came amid a backdrop of receding inflationary pressures with the economy slowly gathering steam.
Inflation has declined rapidly over the last few months, coming in at 2.1% in May, and is now below the Central Bank’s long-term target of 2.5% as still-subdued domestic activity has weighed on prices. However, domestic economic conditions seem to be improving, which will support inflation. In fact, Mainland GDP rose faster than expected in Q1, showing that the non-oil sector is recovering from the crisis triggered by the global oil price slump, which had spilled over into Norway’s domestic economy. The Bank now forecasts Total GDP to grow 1.2% and Mainland GDP to rise 2.0% in 2017 (March report: +1.0% and +1.6%, respectively). Regarding the housing market, the rapid rise in house prices and household debt emerging from record-low interest rates remain a major risk and “it will take time for household vulnerabilities to recede”, the Bank stated.
Looking ahead, the Executive Board took a neutral stance and no longer gave hints of a rate cut in the near future. Norges Bank was thus in line with the ECB’s latest statement that there will be no further easing and that it is willing to tolerate the below-target inflation, but is taking into consideration the adverse effects low interest rates could have on the housing market.