Norway Shelves Planned Easing as Economy Survives Oil Crash

(Bloomberg) -- Norway’s central bank kept its key policy rates unchanged at a record low and signaled a smaller chance for further easing as the economy fights off a slowdown amid a boom in the housing market. The krone jumped.

The main rate was held at 0.50 percent, as forecast by 15 of 22 analyst surveyed by Bloomberg, the Oslo-based bank said on Thursday. It raised its outlook for its rate going forward while keeping a small indication it may cut again. The krone surged 0.9 percent to 9.16 per euro.

“Our current assessment of the outlook suggests that the key policy rate will most likely remain at today’s level in the period ahead,” Governor Oeystein Olsen said in the statement. The bank’s policy rate forecast bottoms at 0.4 percent in the second quarter of 2017.

Battered by a collapse in oil prices since 2014, Norway has managed to avoid negative rates and the kind of unconventional policies that dominate elsewhere. That’s largely thanks to the government spending a record amount of its petroleum wealth which, combined with successive rate cuts and a weakening krone, has supported the non-oil sectors of the economy.

Analysts at Nordea Bank said in a note that the central bank as basically done away with its easing bias.

“The bottom of the rate path has been lifted from 0.25 percent to 0.40 percent and just as important the bottom has also been pushed out to Q2 next year,” Nordea said. “As such it indicated only a 20 percent chance for a cut at the December meeting and a further 20 percent chance at the March meeting. We do not consider this an easing bias. Just a reflection of that risks to rates are still skewed to the downside.”

Key indicators are signaling that the worst may be over for Norway’s economy, which has lost almost 40,000 jobs in the oil industry. Unemployment has risen to 5 percent, the highest in about two decades, but the rate of registered unemployed has been growing less steeply and house prices are surging.

“Inflation in Norway has been unexpectedly high in recent months,” the bank said. “At the same time, there are signs that growth in the Norwegian economy is picking up at a slightly faster pace than projected in June. House price inflation has accelerated and been higher than projected.”

While the krone is now mirroring the recovery in crude prices, sparking concern among exporters, the currency’s long-term weakness has pushed inflation to above 4 percent, surpassing the bank’s 2.5 percent target.

Still, the bank predicts underlying inflation will slow to below target by the end of next year.

To contact the reporter on this story: Sveinung Sleire in Oslo at ssleire1@bloomberg.net. To contact the editors responsible for this story: Jonas Bergman at jbergman@bloomberg.net, Stephen Treloar