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Norway holds rate, raises policy rate, inflation forecasts

Thursday, September 22, 2016 3:18
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(Before It's News)

    Norway's central bank left its key policy rate at 0.50 percent, as expected, but raised its forecast for inflation and the policy rate due to a stronger-than-expected effect of inflation from a weaker krone, which may then translate into higher wages next year.
    Norges Bank (NB), which cut its rate by 25 basis points in March, said inflation had been “unexpectedly high” in recent months while there are also signs that economic growth was picking up at a slightly faster pace than projected in June while house price inflation has accelerated above expectations.
    “Our current assessment of the outlook suggests that the key policy rate will most likely remain at today’s level in the period ahead,” NB Governor Oeystein Olsen said, adding that the bank's forecast still implies a slightly higher probability of a rate cut in the year ahead.
    In its latest monetary policy report, the central bank raised its inflation forecast for 2016 to 3.6 percent from 3.3 percent forecast in June, the 2017 forecast to 2.6 percent from 2.2 percent, the 2018 forecast to 2.1 percent from 1.9 percent and the 2019 forecast to 1.8 percent from 1.7 percent.
    Norway's inflation rate eased to 4.0 percent in August from 4.4 percent in July, mainly due to lower airfares.
    NB raised its forecast for the key policy rate to average 0.6 percent this year, up from 0.5 percent, and the 2017 forecast to 0.4 percent from 0.3 percent. For 2018 the central bank also forecasts a key policy rate of 0.4 percent, rising to 0.7 percent in 2019.
    The forecast for economic growth this year was raised to 0.9 percent from 0.8 percent, rising to 1.8 percent in 2017, up from 1.6 percent. For 2018 Gross Domestic Product was seen rising by an unchanged 2.1 percent while the forecast for 2019 was trimmed to 2.1 percent from 2.3 percent.
    Norway's GDP grew by an annual rate of 2.5 percent in the second quarter of this year, up from 0.6 percent in the first quarter.

    Norges Bank issued the following statement:

“The growth prospects for imports among Norway’s trading partners have weakened somewhat since June, and expected policy rates abroad have declined slightly. Oil prices are at about the same level as before summer, while the krone has appreciated somewhat. The Norwegian money market premium has increased and been higher than expected.
Inflation in Norway has been unexpectedly high in recent months. At the same time, there are signs that growth in the Norwegian economy is picking up at a slightly faster pace than projected in June. House price inflation has accelerated and been higher than projected. Low interest rates may contribute to a persistently high rate of increase in house prices and increase the vulnerability of the financial system. On the other hand, growth in the Norwegian economy is moderate, and capacity utilisation is below a normal level. As a result of low cost growth and a somewhat stronger krone, inflation is likely to recede further ahead.
“Our current assessment of the outlook suggests that the key policy rate will most likely remain at today’s level in the period ahead,” says Governor Øystein Olsen.
The analyses in this Report suggest that the key policy rate will remain close to ½ percent in the next few years. At the same time, the key policy rate forecast implies a slightly higher probability of a decrease than an increase in the key policy rate in the year ahead.”

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