Norway Monetary Policy


Norway: Norges Bank unexpectedly cuts rate to counter oil price decline

December 11, 2014

At its 11 December monetary policy meeting, Norges Bank (NB) decided to cut the sight deposit rate by 25 basis points to 1.25%. The Bank’s decision, which caught market analysts by surprise, represented the first change in Norway’s monetary policy rate since April 2012 and brought the sight deposit rate to the record-low last seen during the global financial crisis.

In its statement, the Central Bank acknowledged that growth among the country’s main trading partners remains moderate, while uncertainties have increased in recent months, particularly in the Euro area. In addition, the expected increase in key rates abroad has again been postponed.

Regarding the domestic economy, Governor Oystein Olsen stated that growth prospects for the Norwegian economy have deteriorated and emphasized that the sharp fall in oil prices will add further pressure on the all-important petroleum industry. The Bank noted that the krone has depreciated markedly since September, thereby promoting exports, but also underpinning inflationary pressures.

Governor Olsen maintained his dovish stance and stated that, “the key policy rate should lie in the interval 0.75%–1.75% percent in the period to the publication of the next Report on 19 March 2015.”

Along with the monetary policy decision, Norges Bank announced that it has submitted to the Ministry of Finance the quarterly advice on the level of the countercyclical capital buffer requirement for banks. According to Governor Olsen, “the analysis in the Report indicates that financial imbalances as a whole are not building up further. Should house prices continue to rise markedly faster than household income, imbalances may increase again.”

Given the unexpected nature of the rate cut, FocusEconomics Consensus Forecast panelists are still factoring in the Norges Bank’s decision and expect the sight deposit rate to be at 1.42% by the end of 2015. In 2016, the panel sees the key policy rate rising to 1.75%.

Author: Ricard Torné, Head of Economic Research

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Norway Monetary Policy Chart

Norway Monetary Policy December 2014 0

Note: Sight deposit rate in %.
Source: Norges Bank (NB).

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