Thursday, May 12, 2016

Norway leaves rate as economy largely as forecast

    Norway's central bank left its key policy rate at 0.50 percent, as expected, saying economic developments had not "deviated substantially" since the rate cut and forecasts from March with inflation remaining "elevated" but a stronger exchange rate of the krone currency possibly contributing to a slightly more rapid fall in inflation than expected.
    On the other hand, Norges Bank added that the recent rise in oil prices may reduce uncertainty and thus lead to "somewhat" higher economic growth.
    Norges Bank cut its rate by 25 basis points on March 17 and said it may reduce the rate further this year, and even push it into negative territory if the economy was hit by a major shock.
    However, Oeystein Olsen, governor of the central bank, at that time also underscored the need for greater caution in setting rates due to uncertainty over the impact of low rates on the financial system.
    In today's statement, Olsen did not issue any new guidance. The central bank updates its forecast four times a year: March, June, September and December.
    In March the central bank left its forecast for the key policy rate to remain at 0.5 percent this year but then lowered the forecast for 2017 to 0.2 percent from 0.4 percent, implying a rate cut next year.
    For 2018 the key policy rate was seen steady at 0.2 percent before rising to 0.5 percent in 2019.
    Since the March rate cut, the krone has risen more than forecast due to the rise in oil prices, the central bank said, adding that banks had reduced lending rates but less than expected. Labour market developments had been slightly stronger than expected while economic prospects were little changed.
    A gradual rebound in crude oil prices has strengthened Norway's krone since early January with it trading at 8.1 to the U.S. dollar today, up 8.6 percent since the start of this year.
    Norway's headline inflation rate eased to 3.2 percent in April from 3.3 percent in March.
    In its March report, Norges Bank raised its inflation forecast for this year to 3.1 percent from 2.8 percent forecast in December due to the impact of a fall in the exchange rate from April 2014 to January 2016 on import prices.
    For 2017 inflation was seen averaging 2.3 percent, for 2018 2.1 percent and 1.7 percent in 2019.
   In March the outlook for growth in mainland Norway was seen averaging 0.8 percent this year, down from the December forecast of 1.1 percent, and for 2017 growth was seen at 1.8 percent.
   In 2018 Norway's economy was seen expanding by 2.3 percent and by 2.5 percent in 2019.
   Norway's Gross Domestic Product grew by an annual rate of 0.7 percent in the first quarter of this year, up from 0.1 percent in the fourth quarter of last year.

    Norges Bank issued the following statement:

"Norges Bank's Executive Board has decided to keep the key policy rate unchanged at 0.50 percent.
On the whole, developments since March have not deviated substantially from the projections in the March 2016 Monetary Policy Report. Consumer price inflation remains elevated, but a stronger krone may contribute to a slightly more rapid decrease in inflation than projected in March. On the other hand, the rise in oil prices may reduce uncertainty and contribute to somewhat higher growth in the Norwegian economy.
"An overall assessment of new information indicates that the key policy rate should be kept unchanged at this meeting", says Governor Øystein Olsen."


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