Norway Maintains Interest Rates, Anticipates December Hike – Reuters

By Terje Solsvik

OSLO (Reuters) – Norway’s central bank has decided to maintain its benchmark interest rate at 4.25%, a move that was widely anticipated. The bank indicated that an increase in borrowing costs may occur next month unless inflation continues to show signs of decline.

All 29 economists surveyed ahead of the announcement had predicted the rates would remain unchanged, although opinions were mixed regarding a potential hike to 4.50% in December.

Norges Bank Governor Ida Wolden Bache stated, “Based on the committee’s current assessment of the outlook, the policy rate will likely be raised in December.” She further noted that if there is more confidence that underlying inflation is decreasing, the policy rate may be kept steady.

Following the announcement, the Norwegian crown strengthened to 11.81 against the euro, up from 11.83 prior.

Analysts at Nordea Markets commented that while Norges Bank is still signaling a potential rate increase in December, uncertainty has increased. They believe rates will remain stable due to lower inflation figures than what the central bank estimates.

Norwegian consumer prices have decreased more rapidly than anticipated in recent months, falling below the central bank’s forecasts and those of economists, yet they still outpace the official inflation target of 2.0%. As of September, the headline annual inflation stood at 3.3%, down from 4.8% in August and lower than the central bank’s prediction of 4.2%. Core inflation, which excludes energy costs and tax changes, was reported at 5.7% in September, also below the central bank’s forecast of 6.2% and marking a decline for the third consecutive month since peaking at 7.0% in June.

Norges Bank noted that while the labor market remains tight, economic pressures are easing, and inflation is significantly above the 2% target. The central bank added that even though consumer price inflation is declining, underlying inflation remains high.

The committee indicated that the policy rate is likely close to what is needed to manage inflation, allowing them additional time to evaluate the necessity of a rate increase.

In recent months, the Norwegian crown has resumed a weakening trend against the euro, dollar, and other currencies, which raises concerns that this could further fuel inflation by making imports more expensive. The currency has weakened about 6% from early August to the close of the market on Wednesday, on a trade-weighted basis.

The U.S. Federal Reserve decided to keep rates steady on Wednesday amid discussions on the need for further increases.

Last week, the European Central Bank also opted to hold its policy steady, maintaining the benchmark rate at a record 4.0% while signaling a continuation of the current approach for now.

The Bank of England is also expected to announce its latest rate decision today, with predictions pointing towards a continued hold.

(Note: This article has been corrected to refer to core inflation, not “cone inflation,” in the ninth paragraph.)