Bank of Norway Keeps 0.5% Interest Rate and Signals No Likely Change for Quite a While

December 15, 2016

Three 25-basis point interest rate cuts were administered between June 2015 and March 2016. Policy since then has remained unchanged. Macroeconomic trends might justify further easing but housing market imbalances and external uncertainties argue otherwise.

Changes in the outlook for inflation and capacity utilization imply, in isolation, a somewhat lower key policy rate in the coming years. On the other hand, the rapid rise in house prices and household debt has increased the risk of a sharp fall in demand further out. A lower key policy rate increases the risk of a further acceleration in house price inflation and debt accumulation. The risk of a build-up of financial imbalances and the uncertainty surrounding the effects of a lower key policy rate now suggest a cautious approach to interest rate setting. Our current assessment of the outlook suggests that the key policy rate will most likely remain at today’s level in the period ahead.

Copyright 2016, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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