Bank of Norway Doesn’t Cut Key Policy Rate Further, Surprising Analysts

March 19, 2015

As an energy producer and exporter, the Norwegian economy is vulnerable to the slide in oil prices since June of last year.  The Executive Board of Norges Bank, which meets quarterly, engineered a 25-basis point interest rate cut at its December 2014 meeting but did not follow up on that move now because

  • Adverse effects from lower oil prices on Norway’s economy have been pretty small thus far.
  • House price inflation is pretty fast.
  • The sight deposit rate level of 1.25% already lies about a percentage point below inflation.

Today’s central bank statement  leaves a door wide open for future interest rate reduction: “If economic developments ahead are broadly in line with that projected, there are prospects for a reduction in the key policy rate”, says Governor Olsen.  Analysts, who mostly predicted another cut at today’s meeting, are merely pushing that action out to the June meeting.  In the wake of the Great Recession, the Norges Bank was Europe’s first central bank to raise interest rate, doing so in October 2009.  Three more increases of 25 bps each in December 2009, May 2010 and May 2011 followed, but that entire tightening was reversed with cuts of 50 bps in December 2011, 25 bps in March 2012 and the aforementioned 25-bp cut last December.

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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