Norway maintains rate, but June rate cut still likely

    Norway's central bank held its key policy rate steady at 1.25 percent but still expects to cut the rate in June as economic developments have been broadly in line with expectations from March.
    Oeystein Olsen, governor of Norges Bank who said in March that a rate cut was likely in May or June, said there were "still prospects that the key policy rate will be lowered in June."
    The central bank's executive board next meets on June 18 when it also issues its next monetary policy report. Many economists had expected Norges Bank to wait with any rate cut until June.
    On one hand, economic growth in Norway is moderate, inflation is low, unemployment has risen and wage growth may be lower than projected, Olsen said.
    On the other hand, oil prices have risen, household demand remains buoyant, house prices continue to rise and household debt has increased more than expected, Olsen added.
    In its most recent monetary policy report from March, the central bank revised down its forecast for the key policy rate to 1.00 percent for 2015 from 1.25 percent forecast in December, with the rate unchanged at that level in 2016 and 2017 before rising to 1.25 percent in 2018.
    The consumer price inflation rate for 2015 was revised down to 2.25 percent from 2.50 percent while the 2016 forecast was revised down to 2.25 percent from 2.75 percent and the 2017 forecast cut to 2.25 percent from 2.50 percent.
    Norges Bank targets 2.50 percent inflation and in March inflation rose to 2.0 percent from 1.9 percent in the prior month.
    Norway's Gross Domestic Product expanded by 0.9 percent in the fourth quarter of 2014 from the third quarter for annual growth of 3.2 percent, up from a rate of 1.8 percent in the third quarter.
    Norges Bank in March projected 2015 growth of 1.50 percent, unchanged from its December forecast, 2016 growth of 2.0 percent, down from 2.25 percent, and unchanged forecast of 2.50 percent for 2017 and 2018 growth of 2.75 percent.


    Norges Bank issued the following statement:

"Norges Bank's Executive Board has decided to keep the key policy rate unchanged at 1.25 percent.

"Developments in the Norwegian economy have so far been broadly in line with the March projections. On the basis of an overall assessment, the Executive Board decided to keep the key policy rate unchanged at this meeting", says Governor Øystein Olsen.

Economic growth among Norway's trading partners is still moderate. Inflation is very low in many countries. Policy rates are close to zero or negative, and expectations concerning policy rates abroad for the period ahead have fallen somewhat.

Consumer price inflation in Norway is close to 2.5 percent. As expected, unemployment has risen. This year's wage settlement suggests so far that wage growth may be somewhat lower than previously projected. On the other hand, oil prices have increased and household demand remains buoyant. House prices continue to rise and household debt has increased more than expected.

"From the information we have received recently, there are still prospects that the key policy rate will be lowered in June", says Governor Øystein Olsen.

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