Norges Bank Leaves Benchmark Interest Rate Unchanged at 5.75%

September 24, 2008

Norway’s central bank kept policy steady as expected, and dropped signaling the possibility of one more rate advance.  There had been sixteen 25-basis point increases between June 2005 and June 25, 2008, lifting the rate from 1.75% to to 5.75%.  The prior policy meeting on August 13th had still stressed rising and higher-than-desired inflation.  Today’s statement stresses the deepening global financial market crisis, which among other things has lifted “the cost of corporate and household borrowing” in Norway. The central bank indicated that it is providing both kroner and U.S. dollar liquidity to stabilize the Norwegian money market.

Core inflation is running just under 3.5% and well above the 2.5% target.  There is no explicit mention this time of high capacity utilization as in the August statement.  However, the new statement observes rapid wage growth, a weaker exchange rate, and productivity growth that is slackening more quickly, all of which will keep inflation elevated.  While growth is slowing, a soft, not hard, landing is presumed, and in press conference Q&A a growth rate of 2% was postulated for 2H08.  The long-term outlook for the benchmark interest rate to ease to 5.25% in late 2010 has been retained. 


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