Thursday, November 5, 2015

Norway holds rate, crown, fiscal policy to help demand

    Norway's central bank left its key policy rate steady at 0.75 percent, saying a weaker-than-expected exchange rate of the crown and an expansive fiscal policy will help fuel demand at the same time that the impact of the fall in oil prices have hit household consumption and joblessness.
    Norges Bank has cut its rate twice this year by a total of 50 basis points and said in September that it may cut its policy rate further in 2016 due to the economic outlook.
    Norway's krone currency has been depreciating since mid-2014, in sync with the fall in crude oil prices, and was trading at 8.56 to the U.S. dollar today,  down 12.8 percent this year.
     The country's unemployment rate rose to 4.6 percent in August from 4.3 percent in July as Gross Domestic Product contracted by 0.1 percent in the second quarter from the first for annual growth of 2.2 percent, up from 1.5 percent in the first quarter.
     The headline inflation rate rose to 2.1 percent in September from 2.0 percent in August, below the bank's 2.5 percent target.

    Norges Bank issued the following statement:

"Norges Bank's Executive Board has decided to keep the key policy rate unchanged at 0.75 percent.
The effects of the fall in oil prices and decline in oil investment are gradually becoming evident, especially in regions closely linked to the oil industry. Unemployment has edged up as expected, while household goods consumption has been lower than projected. Overall, policy rate expectations among Norway's trading partners have fallen somewhat. On the other hand, the krone exchange rate has been weaker than projected, and a more expansionary fiscal policy will contribute to fuelling demand for goods and services.
Inflation has been in line with projections in the September 2015 Monetary Policy Report. The year-on-year rise in the CPI-ATE was 3.1 percent in September.
"An overall assessment of new information implies that the key policy rate be kept unchanged at this meeting", says Governor Øystein Olsen."


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