Thursday, December 5, 2013

Norway holds rate, sees steady rate until mid-2015

    Norway's central bank held its policy rate steady at 1.5 percent and said growth prospects had weakened recently which implies "that the key policy rate should be held at the current level in the period to summer 2015 and be increased gradually thereafter."
    "The increase in the key policy rate is now forecast to occur one year later than projected in September," Norges Bank Deputy Governor Jan Qvigstad said in a statement.
    In September the central bank forecast that rates would be maintained at the current level until the summer of 2014 and then gradually raised. But last month the bank dropped this guidance, saying any rise in interest rates among key trading partners had been pushed further in the future.
    Norges Bank, which last cut its rate in March 2012, said inflation had been lower than expected in the past two months, growth will be lower than forecast, house prices had declined and wage growth may be somewhat lower than projected.
    On the other hand, the Norwegian krone currency had depreciated considerably.
    "On balance, there are prospects that consumer price inflation will be somewhat lower than previously projected," Qvigstad said.
    In its latest monetary policy report, Norges Bank forecast that inflation would average 2.25 percent this year, unchanged from its September report, but next year inflation is forecast at 2.0 percent, down from 2.25 percent. The 2015 inflation forecast is unchanged at 2.0 percent.
    The country's economy is forecast to expand by 1.75 percent this year, unchanged from the previous forecast, and then expand by 2.0 percent in 2014, down from 2.25 percent. In 2015 the economy is forecast to grow by 2.50 percent, down from 2.75 percent.
    The central bank also forecast that its policy rate would remain at its current level of 1.5 percent in 2014, down from its previous forecast of 1.75 percent, and then rise to an average 1.75 percent in 2015 compared with its September forecast of 2.0 percent. In 2016 the policy rate is forecast to average 2.0 percent, down from 2.5 percent.
   "At its meeting, the Executive Board decided that they key policy rate should be in the interval 1%-2% in the period to the publication of the next report on 27 March 2014, unless the Norwegian economy is exposed to new major shocks," the bank said.
    Norway's krone currency rose steadily against the euro from 2009 but then started to depreciate early this year and fell further following today's policy decision. It was trading at 8.40 krone to the euro today, down 12 percent since the end of 2012.
    The central bank also said it had issued advice on the so-called "countercyclical buffer" for banks and this would be published when the finance ministry had made its decision.
    Banks will be asked to build up a buffer, or an extra cushion of capital reserves, that they can draw on during hard economic times.
    Norges Bank decided in March to introduce the buffer, part of the guidelines issued by the Basel Committee for Banking Supervision, but then decided in September to delay imposing it as banks are already facing higher capital ratios.



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