Norway Sticks to Tightening Plan as Rate Held at Record Low
(Bloomberg) -- Norway’s central bank kept its signal intact to start raising interest rates in the second half of this year, undeterred by a cooling economic recovery in western Europe’s biggest oil producer.
In an interim decision on Thursday, Norges Bank, as anticipated, held its key rate at 0.5 percent. The bank reiterated its message from March that it will start tightening monetary policy “after summer.”
“The outlook and the balance of risks do not appear to have changed substantially since the March Report,” central bank Governor Oystein Olsen said in a statement.
The krone rose about 0.1 percent after the decision, perhaps a sign that “some had feared a more dovish twist,” according to Kristoffer Lomholt, an analyst at Danske Bank A/S.
Norwegian policy makers and their peers globally are seeking to retreat from the extreme monetary stimulus unveiled in the aftermath of the financial crisis. Sweden’s Riksbank has signaled a rate increase toward the end of this year, while the European Central Bank is preparing its own slower exit.
But doubts are cropping up over whether any tightening will be carried out. Since the most recent Norwegian rate decision in March, unemployment data has disappointed and underlying inflation has unexpectedly dipped further below the target.
In its broader assessment, the bank chose to highlight that a decline in confidence indicators in Europe suggests growth for its trading partners is “somewhat weaker” and that consumption of goods in Norway was lower than expected. On the other hand, oil prices are now higher than assumed and the krone weaker than projected, it said.
“Given that markets already price in a high probability of a September hike, we would want to prefer a clearer signal that the latest string of disappointing domestic data releases are but temporary before re-buying the krone,” said Lomholt.
Policy makers in March did get some more support for their plans to tighten when the government lowered the inflation target to 2 percent from 2.5 percent. That was designed to bring the price target in line with the likes of the ECB, the Federal Reserve and Sweden’s Riksbank.
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