No Change in Norway’s Key Central Bank Rate

December 15, 2010

Norway has not experienced the kind of explosive recovery that neighboring Sweden has enjoyed.  Real GDP contracted sharply in the third quarter and was even lower than its level in 3Q09.  Even though activity picked up this quarter, core consumer price inflation in Norway is hovering around 1.5% and expected to remain around there well into 2011.  A statement released by the Norges Bank today observes that although capacity use has begun to rise in Norway, actual GDP still lies below its trendline.  The statement notes that many central banks still have low policy rates — Sweden’s rate, for example, still lies 75 basis points below the Norges Bank’s 2.0%.  And a third reason for caution is the persistence of European debt uncertainties that overshadows the region’s growth outlook.  Nonetheless, officials served notice that a further hike of rates will be made at some future time: “The key rate should not be kept low for too long.”

Beginning with two rate cuts of 50 basis points each in October 2008, the Norges Bank slashed its policy rate seven times by mid-2009 from a prior peak of 5.75% to a low then of 1.25%.  Later in 2009, rate increases were implemented of 25 basis points in October — Europe’s first — and again in December, but only one 25-bp hike was made in 2010, and it was done in May.

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



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