Thursday, October 24, 2013

Norway holds rate but drops guidance on weaker growth

    Norway's central bank held its policy rate steady at 1.5 percent, as expected, but dropped its guidance that rates would be maintained at the current level until next summer when they would be gradually raised to a more normal level.
    Norges Bank (NB), which last cut its rate in March 2012, said growth among Norway's main trading partners was fairly low and largely in line with its projections but the expected increase in key rates abroad had again been pushed somewhat further into the future.
    In addition, household demand in Norway seems to be slightly weaker than the central bank had assumed, house prices had leveled off and inflation had slowed.
    Norges Bank's guidance from September had been based on signs of rising growth in many advanced countries, leading to expectations of earlier interest rate rises, including from the U.S. Federal Reserve, which had been expected to start reducing its asset purchases. But the Fed delayed a tapering of its quantitative easing, leading to the Bank of Canada on Wednesday dropping its tightening bias.
    Prior to its tightening bias from September, Norges Bank had signaled in June that it was likely to cut rates in the coming year, but today's statement signals a more neutral stance as it omitted any guidance.

    "Inflation in September was lower than expected, but at the same time the krone has depreciated since the previous monetary policy meeting. In other respects, economic developments both in Norway and abroad have been broadly in line with expectations. The key policy rate has therefore been kept unchanged," Norges Bank Governor Oeystein Olsen said in a statement.
    Norway's headline inflation fell to 2.8 percent in September from 3.2 percent in August and the bank expects fluctuations the rest of the year, partly due to changes in the methodology of measuring prices, and therefore the bank would not pay too close attention to monthly variations.
    The central bank's policy stance is aimed at keeping inflation close to 2.5 percent.
    Norges Bank said the krone currency had depreciated since its last meeting in September but also noted that it had shown wide fluctuations in recent months.
    The krone was trading at 7.89 to the euro prior to the bank's meeting in September but was trading at  8.14 today.


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