Norges Bank keeps key interest rate at 0%, indicates interest rate increase in September

As expected, there will be no interest rate change in this round. Norges Bank leaves the key policy rate at 0%. The interest rate path shows that interest rates will probably increase in September.  

The key policy rate had been at zero since May 7 last year. Norges Bank’s interest rate committee has announced that it will be kept low until there are clear signs that conditions in the economy are improving.

“As we now assess the outlook and the risk picture, the key policy rate will most likely be raised in September,” central bank Governor Øystein Olsen said.

The experts agree that the interest rate will not be changed until the interest rate committee has a new meeting in September. The interest rate path, which is Norges Bank’s forecast of future interest rate developments, has been revised due to signs that the economy is about to normalize.

Effects of vaccination and reopening

According to Norges Bank, activity in the Norwegian economy picked up after the sharp fall last spring, despite the fact that infection control measures this winter slowed this down somewhat.

“Over the spring, the pace of vaccination has increased, and the authorities have started a gradual reopening of society. Unemployment has fallen but is still high,” Norges Bank pointed out.

The bank emphasizes that there is uncertainty about how the pandemic will develop further but that it is likely to see an interest rate increase in September.

This is partly because underlying inflation has slowed and is now below the target of 2%. However, increased inflation and higher inflation expectations internationally contribute to uncertainty about future price developments.

Norges Bank believes that there is a limited risk that inflation in Norway will be too low.

Gradual interest rate increase

The interest rates committee emphasizes that a long period of low interest rates increases the risk of financial imbalances building up.

“The committee’s assessment is that the outlook and the risk picture as a whole indicate a continued expansionary monetary policy. 

“Further easing of infection control measures will contribute to more normal economic conditions. This indicates that it will soon be right to raise the key interest rate from the current level,” Norges Bank wrote.

It now plans to have a gradual increase in interest rates from the autumn.

Source: © NTB Scanpix / #Norway Today / #NorwayTodayFinance

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