Norway Monetary Policy Unchanged

January 26, 2011

The Norges Bank as expected, retained a 2.0% key interest rate level, same as since May 2010 for essentially the same reasons as given in December.  Core inflation is running at about 1.5%, a percentage point less than the medium-term target.  Other central bank rates have been low, and raising Norwegian rates could subject the krone to more upward pressure that would depress import prices.  As it is, the krone has been stronger than officials anticipated last October.  The impact of persistent European debt uncertainties is another ongoing concern. 

Only 75 basis points have been reversed of a previous 375-bp reduction in the Norges Bank rate between October 2008 and June 2009.  The three tightenings were implemented in October 2009, December 2009 and May 2010.  The Bank’s statement notes that consumption and home prices are picking up and, as in December, warns that rates should not be left low for too long in order to avoid the risks and inflationary repercussions of future financial imbalances.  The next major review is in March, the last having been in October, and until March the key rate is expected to stay between 1.5% and 2.5%, barring a major shock.  So far, Norges Bank officials have steered policy down the center of that corridor.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.



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