Norway’s Central Bank Rate Left Unchanged

February 3, 2010

The conventional wisdom among central bank watchers coming into this week was that policy rates would be lifted by 25 basis points in Australia to 4.0% and Norway to 2.0%.  Neither central bank complied.  A released statement from the Norges Bank does not mention if the option of hiking a third time was mentioned, meaning that it probably was not since the prior statement in mid-December had indicated that policy makers had discussed the possibility of not raising rates but opted instead for a 25-bp increase.  The statement speaks of slack in the economy despite expanding activity and a low jobless rate and of uncertainty that still surrounds the economic outlook in other countries whose key rates are “close to zero” and “expected to remain low for some time ahead.”  The statement fails to mention what likely was one of the main reasons why rates were not raised this month as they had been last October and December, and that is the 2.9% appreciation of the Norwegian krone against the euro since the last Norges Policy meeting.

Norway’s rate was reduced in seven steps from 5.75% prior to mid-October 2008 to 1.25% as of May 2009.  A 175-basis point cut in December 2008 was among the largest single-step reductions of any central bank during the Great Recession.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.



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