The Bank of Norway’s Monetary Policy and Financial Stability Committee decided to keep the policy rate unchanged at 4.5% at its meeting on March 20. “It is likely that it will be necessary to maintain the policy rate at the current level for some time to return inflation to the 2 percent target over a reasonable time horizon,” Governor Ida Wolden Bache said in her statement to the media this Thursday.
According to the Nordic monetary authority, monetary policy is having a “restrictive effect” and the growth of the Norwegian economy is “low”, in addition to which price inflation “is slowing, but is still clearly above the target.”
Norges Bank predicts that inflation will remain “high in the future” due to rising business costs, high wage growth and the depreciation of the Norwegian krone against the euro and the dollar. The organization also detects that the economy has improved compared to December and the evolution of prices is better, which in practice reduces the need to raise rates and also lower them.
In a speech similar to that of the ECB or the Fed, the monetary policy committee admits that it is concerned “about the possibility that if the official rate is lowered prematurely, inflation could remain high, among other things, because then the crown could weaken “, warns Norges Bank. “Overly tight monetary policy could slow the economy more than necessary,” he says.
The current forecast indicates that the official rate “will remain at 4.5 percent until the fall, before gradually declining.” Norway expects economic growth to remain moderate through the first half of 2024 before recovering. “Unemployment is likely to rise, although less than anticipated in December. Inflation is projected to decline more rapidly than previously expected in 2024 and approach 2% by the end of 2027,” she explains.
“There is uncertainty about the future of the Norwegian economy. During the discussion on the balance of risks, the Committee expressed concern about the wide disparities between industries and their impact on the economic outlook. Whether cost inflation remains high or the crown “Norway turns out to be weaker than projected, inflation could remain elevated for a longer period than currently expected. If inflation declines more markedly or more rapidly, rates could be reduced sooner than expected,” he adds.
