Policy rate unchanged at zero percent

Norges Bank’s Monetary Policy and Financial Stability Committee has unanimously decided to keep the policy rate unchanged at zero percent.

In the Committee’s current assessment of the outlook and balance of risks, the policy rate will most likely remain at today’s level for some time ahead.

The COVID-19 pandemic has led to a sharp downturn in the Norwegian economy.

Activity has picked up through summer, and unemployment has decreased.

The increase in infection rates may put a brake on the upswing in the coming period.

Recovery will take time

It will take time for output and employment to return to pre-pandemic levels.

Underlying inflation is above the target, but the krone appreciation since March and prospects for low wage growth suggest that it will moderate.

Low interest rates contribute to speeding up the return to more normal output and employment levels, reducing the risk of unemployment becoming entrenched at a high level.

Financial imbalances

On the other hand, a long period of low interest rates could increase the risk of a build-up of financial imbalances.

“The sharp economic downturn and considerable uncertainty surrounding the outlook suggest keeping the policy rate on hold until there are clear signs that economic conditions are normalizing,” Governor Øystein Olsen said.

The policy rate forecast hasn’t changed a lot since the June 2020 Monetary Policy Report.

It implies a rate at the current level over the next couple of years, followed by a gradual rise as activity approaches a more normal level.

Source: Norges Bank / Norway Today