Thursday, March 27, 2014

Norway holds rate, repeats on hold until summer 2015

    Norway's central bank held its policy rate steady at 1.5 percent, as expected, and reiterated that it expects to maintain this rate until the summer of 2015 followed by a gradual increase.
    Norges Bank, which last cut its rate in March 2012, said the Norwegian economy was performing broadly as projected in the December policy report though growth prospects had weakened somewhat.  
    However, the bank still expects growth to pick up further ahead, with capacity utilization increasing gradually towards a normal level after falling over the next year.
    "At its meeting, the Executive Board decided that the key policy rate should be in the interval 1% - 2% in the period to the publication of the next report on 19 June 2014, unless the Norwegian economy is exposed to new major shocks," the bank said.
     Growth in petroleum investment and housing investment is likely to be somewhat weaker than projected, with the krone currency slightly weaker than assumed and 2013 wage growth of 3.9 percent was higher than expected, the bank said.
    "There are prospects that consumer price inflation will be slightly higher than previously projected," the bank quoted its governor, Oeystein Olsen, as saying. Norges Bank targets 2.5 percent inflation.
    Norway's inflation rate eased to 2.1 percent in February from 2.3 percent in January.
    In its latest March monetary policy report, the central bank maintained its forecast from December for headline inflation of 2.0 percent in 2015 and 2015, but revised upwards its 2016 forecast to 2.25 percent from 2.0 percent and forecast 2.25 percent inflation in 2017.
     Norway's Gross Domestic Product contracted by 0.2 percent in the fourth quarter of 2013 from the third quarter for annual expansion of only 1.1 percent, down from 2.2 percent in the third quarter.
     The central bank trimmed its 2014 GDP forecast for mainland Norway to 1.75 percent from December's forecast of 2.0 percent but maintained the 2015 forecast at 2.5 percent and the 2016 forecast at 3.0 percent.
    In September 2013 the central bank had forecast that rates would be maintained until the summer of 2014 but then in November it dropped this guidance. In December it then said that the policy rate should be maintained to the summer of 2015 and gradually increased thereafter.
    In its latest forecast, the central bank projects the policy rate at an unchanged 1.5 percent this year, then 1.75 percent in 2015, 2.0 percent in 2016 and 2.50 percent in 2017. 


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