Norges Bank Tells Market to Prepare for a Rate Hike in March

(Bloomberg) -- Norway’s central bank said it will probably need to raise its main interest rate again in March, as it prepares the next step in a gradual shift away from extreme monetary stimulus.

The bank kept its deposit rate at 0.75 percent on Thursday, after in September delivering the first hike in seven years. Policy makers had previously signaled they’d need to increase rates in the first quarter, in which meetings are scheduled for January and March.

Norges Bank said that the “outlook and the balance of risks imply a gradual interest rate increase in the years ahead,” in a statement.

Norway, which is Scandinavia’s richest economy and western Europe’s biggest oil exporter, has moved away from record-low rates faster than central banks in Sweden and the euro zone. The European Central Bank is due to unveil its most recent decision later on Thursday, and is expected to announce an end to bond purchases.

Norway’s krone gained as much as 0.4 percent against the euro after the bank announced its decision. Kristoffer Lomholt, a senior analyst at Danske Bank, said in a Tweet that it was “important” that Norges Bank committed to its guidance for a hike in the first quarter.

Governor Oystein Olsen Says

• The decline in oil prices might translate into slower wage growth.
• Capacity utilization is close to a normal level, which means there’s very little slack left in the economy.
• Interest rates will rise gradually in the years to come, though the bank will take a very cautious approach at each step.

The Nordic country channels its oil riches into the world’s biggest sovereign wealth fund, creating a buffer that’s helped Norway weather economic crises better than most. Norges Bank hasn’t had to resort to negative interest rates or other unconventional policies such as bond purchases to get through challenging times. Norway is trying to wean itself off oil markets, but it’s not immune to price swings.

“The policy rate forecast is little changed, but the fall in oil prices and weaker global growth prospects imply a slightly slower rate rise than in the September Report,” Norges Bank said.

It also expects that inflation will “remain close to target in the coming years, at the same time as unemployment remains low. The policy rate path will be adjusted in response to changes in economic prospects.”

--With assistance from Christian Wienberg.

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, Tasneem Hanfi Brögger, Nick Rigillo

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