On Sept. 20 Norges Bank (NB) raised its rate by 25 basis points, the first rate hike in seven years," and said the rate would most likely be increased further in the first quarter of 2019 as the economic upturn was continuing and capacity utilization close to normal.
In its brief statement today, the NB reiterated this guidance, adding economic growth had been a little lower but inflation somewhat higher than projected in September but the overall outlook and balance of risks had not changed substantially.
The week after the rate hike, NB Governor Oeystein Olsen confirmed the central bank would take a cautious approach to rate increases in coming years to assess the impact of higher interest rates on households as their debt levels are higher so rate increase will have a greater impact on consumption than earlier.
However, Olsen added that the strength of this impact on household consumption from higher interest rates is uncertain, suggesting a cautious approach to rate setting.
In the run-up to the rate hike, the Norwegian krone had firmed but since the hike it has eased.
Today the krone was trading at 8.32 to the U.S. dollar, down 2 percent since Sept. 20 but down only 1.4 percent since the start of this year.
In its September monetary policy report, NB forecast the policy rate would average 1.0 percent in 2019, 1.5 percent in 2020 and 1.9 percent in 2021.
Norway's headline inflation rate was unchanged at 3.4 percent in September from August, well in excess of the central bank's recently-lowered inflation target of 2.0 percent.
NB has forecast inflation would average 2.7 percent this year but then fall to 1.3 percent in 2019, 1.4 percent in 2020 and 1.8 percent in 2021.
In the second quarter of this year Norway's economy grew by an annual 3.3 percent, up from a contraction of 0.7 percent in the first quarter.
Norges Bank issued the following statement:
"Norges Bank's Executive Board has decided to keep the key policy rate unchanged at 0.75 percent.
In the September 2018 Monetary Policy Report, the Executive Board's assessment was that the economic upturn was continuing and that capacity utilisation was close to a normal level. Underlying inflation was close to the 2 percent target. The key policy rate was raised from 0.50 to 0.75 percent in September, and the Executive Board's assessment was that the key policy rate would most likely be increased further in 2019 Q1.
The outlook and balance of risks imply a gradual increase in the key policy rate. Economic growth has been a little lower and inflation somewhat higher than projected, but the outlook and the balance of risks do not appear to have changed substantially since the September Report."
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