Norwegian central bank keeps forecast steady


Norway’s central bank left its interest rate outlook steady on Thursday, lifting the krone and assuaging concern that the below-target inflation would result in a delayed rate hike.

Norges Bank left its key interest rate on hold at a record low of 0.5 per cent, as expected.

The krone reacted positively, reaching an intraday high of 9.675 against the euro from 9.7133 before the announcement.

On Thursday the bank said “the outlook and the balance of risks do not appear to have changed substantially since the March Report. This suggests keeping the key policy rate unchanged at this meeting.”

The Executive Board’s assessment is that the upturn in the Norwegian economy appears to be continuing broadly in line with the picture presented in the March Report. Underlying inflation is below the inflation target, but the driving forces indicate that it will rise.

Last month the finance committee of Norway’s parliament voted against the government’s decision in early March to lower the inflation target to 2.0 per cent due to concerns it would “help push the interest rates unnecessarily early because it gives stronger krone and hence bigger problems for our export industry”.

Earlier in the year, the Norges Bank had said it expected to make its first rate rise in December 2018, but in March bank governor Oystein Olsen said in a statement that the rate would “most likely be raised after summer 2018”.

Since then, Norway’s economy has kept in line with the central bank’s expectations, although as analysis from ING notes, “inflation and labour market data have been a touch softer than anticipated”. In the first quarter, core inflation was 0.1 percentage points below the bank’s forecast and forward-looking purchasing managers’ indices haven’t quite matched expectations both in Norway and in its European trading partners.

Because of this, some feared Norges Bank would sound more cautious compared to its March outlook. Economists at Commerzbank said they were “sceptical”, especially given the most recent inflation developments in some of Norway’s trade partners, such as Sweden. Last week Sweden’s central bank announced another delay in hiking rates, after underlying inflation didn’t match its target.

Taha Saei, European economist at Oxford Economics, said they still expected a rate hike in December:

With core inflation a full percentage point below the newly instated 2 per cent target, and the labour market recovery showing signs of slowing, we think rate hikes will take place in the latter stages of the year. Our baseline target is a 25 basis point hike in December.

Danske Bank on the other hand has kept its expectations for a rate hike to September 2018, “only slightly earlier than priced in by markets currently”.


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Norwegian central bank keeps forecast steady

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