ADVERTISEMENT

Norges Bank to Keep Key Rate at Crisis Low ‘for Some Time’

Norges Bank to Keep Key Rate at Crisis Low ‘for Some Time’

Norges Bank said it will probably need to keep interest rates at a record low for “some time ahead” to give the economy room to recover from the Covid-19 crisis.

The Oslo-based central bank left its benchmark rate at zero on Thursday, where it’s been since a series of emergency cuts at the height of the Covid-19 crisis earlier this year.

“The Committee’s assessment of the outlook and balance of risks suggests that the policy rate will most likely remain at today’s level for some time ahead,” Norges Bank Governor Oystein Olsen said in a statement.

NORWAY REACT: No Change Today Flags Rate Path Tweak Next Month

The krone slipped slightly against the euro after the announcement. Kari Due-Andresen, chief economist at Handelsbanken in Oslo, said Norges Bank’s statement was “relatively neutral.”

Norway faces a milder recession than the rest of Europe, after successfully controlling the spread of Covid-19 early on. And thanks to its $1.2 trillion wealth fund, Norway was able to add record levels of stimulus without tapping debt markets.

But in Thursday’s statement, Norges Bank said there’s “considerable uncertainty surrounding the further economic recovery.” The bank cited an increase in the spread of Covid-19, which is forcing the reintroduction of restrictions on movement.

BE Primer: Virus Tamed, Norway Set for Swifter Recovery

Norges Bank to Keep Key Rate at Crisis Low ‘for Some Time’

Norges Bank pointed to its assessment in June, when it said rates would probably stay at the current level “over the next couple of years, followed by a gradual rise.” Developments since then largely support that outlook, the bank said.

“The Norwegian economy is in the midst of a deep downturn,” it said. “Activity has picked up in recent months but remains lower than prior to the pandemic. Unemployment has declined but is still high. Underlying inflation has risen and is higher than the inflation target. The krone appreciation and prospects for low wage growth suggest that inflation will moderate further out.”

Read: Krone May Eventually Gain From Tone of Norges Bank’s Statement

The latest economic data, including house prices, retail sales and inflation, have been strong, suggesting Norges Bank may hike rates earlier than its guidance suggests, according to DNB ASA, Norway’s biggest bank. But with a recent uptick in Covid-19 infection rates, forecasts remain uncertain, it said.

Thursday’s rate announcement wasn’t followed by a press conference or fresh forecasts. Norges Bank is due to publish its next monetary policy report with updated forecasts in September.

©2020 Bloomberg L.P.