No Change This Month in Norwegian Policy Interest Rate

June 22, 2011

The Executive Board of the Norges Bank as expected left its key interest rate at 2.25%.  Four increases of 25 basis points were implemented previously in October 2009, December 2009, May 2010 and, most recently, on May 12, 2011.  A statement posted today on the central bank’s web site projects 3-4% real growth over the coming two years and a gradual rise of inflation toward the bank’s 2.5% medium-term target.  Officials see a need for the policy interest rate to increase gradually and a possibility that the speed of increase might need to steepen if growth or inflation advance more sharply than assumed.  Alternatively, upward rate adjustments may evolve more slowly if growth is depressed by renewed financial turbulence or if the exchange rate rises unduly. 

“The Executive Board is of the view that the key policy rate should gradually be raised through the latter half of 2011, against the background of the current outlook and balance of risks. An unexpected jump in activity or in price and cost inflation may lead to a more pronounced upward shift in the key policy rate than currently projected. Should the turbulence in financial markets lead to considerably weaker growth or a marked krone appreciation, the increase in the interest rate may be deferred further ahead.”

Covering these contrasting risks, the projected policy rate range through October is put at 2.25-3.25%.  The next three upcoming policy announcements are scheduled for August 10, September 21, and October 19.  A full Monetary Policy Report will be released after the October meeting. 

During the Great Recession, the Norges Bank’s key policy rate was slashed starting in mid-October 2008 from a peak of 5.75% to a trough seven moves later of 1.25% by mid-June 2009.  That low was maintained for only three months, however, and Norway in October 2009 became the first European central bank to raise rates after the global recession.

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

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