Wednesday, May 8, 2013

Norway holds rate, still sees rate at current level this year

    Norway's central bank held its policy rate steady at 1.5 percent and said it saw no reason to revise its view from March that the rate will remain around this level for the next year and then gradually rise toward a more normal level.
     Norges Bank, which cut its rate by 25 basis points in 2012, said Norway's economy had evolved largely in line with the central bank's expectations and "global growth remains robust" while growth prospects for the euro area had weakened somewhat.
    Deputy Governor, Jan Qvigstad, said in a statement that inflation had been slightly lower than expected and wages were expected to rise somewhat slower than forecast. On the other hand, the Norwegian krone had depreciated, unemployment was low and Norway's economy was growing at a solid pace while household debt continued to rise from a high level.
    "The key policy rate is low because inflation is low and because external interest rates are very low," Qvigstad said, repeating the bank's oft-used phrase.
    In March Norway's inflation rose to 1.4 percent from 1.0 percent in February, but still well below the central bank's 2.5 percent target. The last time inflation was above the bank's target was in December 2011 and since February 2012 it has been below 2.0 percent.
    The Norwegian central bank first started easing its upward rate bias last October and finally at its previous meeting in March the central bank delayed any rate change until next year.
    "In March, the key policy rate was projected to remain at around the current level for the next year before being raised gradually towards a more normal level. There is no basis for changing this assessment for now," Qvigstad said.
    Norway's Gross Domestic Product expanded by 3.5 percent 2012, up from 2.5 percent in 2011, but the government this week cut its 2013 growth forecast to only 1.4 percent from a previous forecast of 2.5 percent.


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