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Steady as She Goes: Norway’s Central Bank Holds Interest Rate
In a move that aligned with the predictions of analysts, Norway’s central bank has maintained its benchmark interest rate at a 16-year peak of 4.50 percent. The announcement on Thursday came with a twist, however, as the bank also signaled a potential rate cut later in the year, specifically eyeing September for this adjustment.
During a press conference, Governor Ida Wolden Bache elaborated on the future monetary policy, hinting at the likelihood of an autumn rate reduction. She also suggested that a second rate cut could be on the horizon by the end of March 2025. Following the announcement, the Norwegian crown saw a slight appreciation against the euro, indicating market approval.
The bank’s monetary policy report revealed a stable forward rate curve for the years 2024 to 2026, with an anticipated rate of 4.25 percent by the close of this year. This stands in contrast to the average forecast by analysts in a Reuters poll, who had expected two rate cuts in the latter half of 2024, bringing the borrowing cost down to 4.0 percent by year-end.
Norges Bank expressed its cautious approach to adjusting the interest rate, balancing concerns about premature cuts potentially fueling inflation against the risks of overly restrictive monetary policy that could unduly hinder economic growth.
Stronger Growth
Despite these concerns, Norway’s central bank has revised its economic growth forecast upwards, now predicting a 0.5 percent growth in mainland GDP for 2024, an improvement from the previously forecasted 0.1 percent expansion. The estimate for 2025 remains unchanged at 1.2 percent.
With core consumer prices expected to rise by 4.1 percent this year—down from the 4.8 percent projection in December—the bank acknowledges inflation rates that continue to surpass its target of 2.0 percent. February’s core inflation rate marked an 18-month low at 4.9 percent year-on-year but still exceeded the central bank’s goal.
The decision by Norway to hold rates steady contrasts with recent actions by other central banks, such as the Swiss National Bank’s unexpected rate cut and the US Federal Reserve’s continued trajectory towards rate reductions later this year, albeit at a moderated pace.
Brokers at Nordea Markets suggest that economic developments could push Norway’s first rate cut back to December, citing pressures on the currency and anticipating later rate cuts abroad than currently expected by markets.
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