Norway maintains rate but still eyes March hike

     Norway's central bank left its policy rate steady, as expected, but said it would "most likely" raise the rate in March as the upswing the country's economy had continued and underlying inflation had risen more than expected and was now close to the bank's inflation target.
     Norges Bank (NB) left its policy rate at 0.5 percent after raising it twice in the second half of 2021 (September and December) by a total of 50 basis points.
     "Based on the Committee's current assessment of the outlook and balance or risks, the policy rate will most likely be raised in March," said NB Governor Oeystein Olsen in a statement.
     In response to the COVID-19 pandemic, NB cut its rate three times and by a total of 1.5 percentage points to 0.0 percent and also slashed banks' countercyclical capital buffer by 1.5 percentage points to counter any tightening of banks' lending standards, which would amplify the economic downturn.
     But helped by the bounce-back in crude oil prices and the global economy, Norway's economy recovered swiftly in the second and third quarters of 2021, and headline inflation has topped the bank's 2.0 percent  target all year.

      In December last year, when NB raised its rate for the second time, it also raised the countercyclical capital buffer as of Dec. 31, 2022 and said it would most likely raise the rate again in March this year.
     Norway's headline inflation rate rose to a 2021-high of 5.3 percent in December, 2021, from 5.1 percent in November while the core inflation rate, which strips out tax changes and energy, rose to 1.8 percent from 1.3 percent.
    Norway's economy grew 5.1 percent year-on-year in the third quarter of 2021, down from 6.2 percent in the second quarter and while NB said higher COVID-19 infection rates had help back activity, unemployment appeared to be lower than it had forecast and relaxation of containment measures will likely contribute to a continued economic upswing.
     "Monetary policy is expansionary," the bank's monetary policy and financial stability committee said, adding:
    "In the Committee's assessment, the objective of stabilizing inflation around the target somewhat further out suggests that the policy rate should be raised towards a more normal level."

     NB publishes its monetary policy report four times a year - in March, June, September and December - and normally makes changes to its policy stance at the same time.

     

    Norges Bank released the following statement:

"Policy rate unchanged at 0.5 percent

Norges Bank’s Monetary Policy and Financial Stability Committee has unanimously decided to keep the policy rate unchanged at 0.5 percent.

"Based on the Committee’s current assessment of the outlook and balance of risks, the policy rate will most likely be raised in March", says Governor Øystein Olsen.

The upswing in the Norwegian economy continued through autumn. Recently, higher infection rates and extensive containment measures have held back activity. Unemployment has edged higher but appears to remain lower than projected in Monetary Policy Report 4/21. Relaxations of containment measures will likely contribute to a continued economic upswing. Higher electricity prices have resulted in high consumer price inflation. Underlying inflation has risen more than expected and is now close to the inflation target.

Monetary policy is expansionary. In the Committee’s assessment, the objective of stabilising inflation around the target somewhat further out suggests that the policy rate should be raised towards a more normal level. A gradual normalisation of the policy rate is consistent with continued high employment. Higher interest rates will also help counter a build-up of financial imbalances.

In its discussion of the balance of risks, the Committee noted that while the Omicron variant appears to be less virulent than the Delta variant, there is still uncertainty about the further evolution of the pandemic. The Committee was also concerned with the risk of a potential rise in domestic price and wage inflation due to capacity constraints and persistent global price pressures."

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