–Adds Comments On Inflation, Strong Krone, Interest Rate Path
PARIS (MNI) – Norges Bank, Norway’s central bank, Thursday raised
its key policy rate by 25 basis points to 2.25%, citing more robust
economic activity and the likelihood that inflation will rise in the
future.
“The upturn in the Norwegian economy has gained a firm footing.
Several other central banks have raised their key rates. The
consideration of stabilizing activity and inflation somewhat further
ahead suggests that the key policy rate should be raised,” Norges
Governor Oystein Olsen said in a statement accompanying the rate
decision.
The rate increase was not a surprise, since the bank had said in
its last monetary policy report on March 16 that the rate should be
increased before the end of the first half. The market was split on
whether Norges would make the move at this meeting or wait until the
last meeting of the first half, scheduled for June 22.
The increase in April of Norway’s annual rate of consumer price
inflation to 1.3%, announced earlier this week, is likely to have tipped
the scales in favor of hiking now. Inflation had been at 1.0% in March.
Despite the relatively strong rise in inflation last month, it is
still well below the central bank’s longer-term target of 2.5%. Core
inflation is running between 1.25% and 1.5%, while the country’s
currency is strong, the central bank said. “Low inflation and a strong
krone suggest that the key policy rate should be kept low.”
It added that, “so far, the low interest rate level has not
triggered a substantial increase in household borrowing,” though housing
prices have risen and housing starts have “moved up sharply.”
Despite the low inflation environment now, “there are prospects
that both capacity utilization and inflation will pick up over the year
ahead,” the bank noted.
“An overall assessment indicates that the key policy rate should be
raised now,” Olsen said. The bank repeated its assessment from March
that “the key policy rate should be raised gradually towards a more
normal level.”
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