Norwegian Central Bank Tightens

December 16, 2009

Norges Bank officials also surprised most analysts, only they raised rates whereas Czech monetary officials cut them today.  This disparity underscores the transitional nature and uneven properties of the world business cycle as analysts await the results of the Fed’s last meeting of 2009 to be announced in less than 3-1/2 hours.  Norway’s central bank remains the only one in Europe to have tightened, and this was their second rate increase.  Like the first announced on October 28, the increase is by 25 basis points, bringing such to 1.75%.  A statement of explanation from Norges Bank Executive Board officials revealed that consideration of not changing the rate again was rejected ultimately because the first increase had not been passed on to bank lending rates and was therefore unlikely to contain future spending.  The communique goes on to say that the economic outlook of recovery has solidified and become less uncertain, and note is made of the strength of consumer spending, house price inflation, and a low rate of unemployment.  Officials do not expect the policy rate to exceed 2.25% before 2Q10.

The policy rate is now at its highest level since March.  Before the recent two tightenings, a sharp decline the Norwegian central bank rate had been engineered in seven steps from a peak of 5.75% coming into October 2008 to a trough of 1.25% in June.  Only the final reduction was 25 bps in size.  Five of them were by 50 basis points, and December saw implementation of a mega-175 basis point cut.  Norwegian GDP rose 3.5% annualized last quarter, and the CPI rose 1.5% in the year to November.  The krone is 0.5% stronger against the euro than right before Norway’s first rate hike in late October.

Copyright Larry Greenberg 2009.  All rights reserved.  No secondary distribution without express permission.



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