Norges Bank keeps the interest rate unchanged – E24

The Central Bank believes that it may be necessary to keep the interest rate up somewhat longer than they previously envisioned.

The case is updated.

Norges Bank leaves the policy rate unchanged at 4.5 per cent. It has been there since the lifting in December last year.

No one expected any change in interest rates at this meeting.

– The way we now assess the prospects, the interest rate will probably be kept at the current level for quite some time to come, says Central Bank Governor Ida Wolden Bache in the press release.

This time it was a so-called interim meeting, which means that Norges Bank will not come up with new forecasts for the economy or interest rates going forward.

The central bank has previously signaled that the interest rate will remain at the current level until the autumn, before it gradually decreases. Central bank governor Ida Wolden Bache said in March that the most likely rate cut is in September.

“The information we have received so far may indicate that there may be a need to keep the interest rate up somewhat longer than we previously envisioned,” writes the central bank in today’s message.

– That’s what we thought. They suggest that an interest rate cut in September is less likely than what we envisioned, says chief economist Kjetil Olsen at Nordea Markets.

Lower price growth – weak krone

Norges Bank points out that since they came out with their monetary policy report in March, price inflation has been lower than forecast.

“On the other hand, economic activity is slightly higher than expected, and wage growth may appear to be slightly higher than forecast. At the same time, interest rate expectations abroad have increased, and the krone is somewhat weaker than assumed.”

High price growth is the main reason why interest rates have been raised sharply in recent years. Price growth has calmed down in recent months, but is still well above Norges Bank’s target of stable inflation of around two per cent.

In March, inflation stood at 3.9 per cent. Core inflation Core inflationMeasures price growth excluding energy products and tax changeswhich Norges Bank looks at the most, moderated to 4.5 per cent.

The krone is another important factor for the central bank and interest rate setting.

It has been weak for a long time, which, among other things, affects inflation through more expensive imports. This week, the krone has been at its weakest levels of the year against both the dollar and the euro, and at weaker levels than Norges Bank has envisaged.

Otherwise, for the Norwegian economy, unemployment remains low, while economic growth has a rather flat development. In the wage settlement, the framework in the important front-line trade settlement was 5.2 per cent, and wage growth this year is expected to provide increased purchasing power.

Less faith in cuts in the US

At the same time, what happens abroad is important for both the interest rate and the krone exchange rate. Interest rates affect exchange rates, partly because it is initially more attractive to place money where the interest rate is high.

The US central bank (Fed) and the European Central Bank (ESB) are the two most important foreign ones.

Belief in interest rate cuts has fallen sharply since the New Year. In the US, the market is pricing in that there will only be one or two interest rate cuts in 2024, and that the first cut of the year may have to wait until November. The American economy is doing well, while inflation has started to climb again.

In the eurozone, it is expected that the first interest rate cut from the European Central Bank (ESB) will come in June, and the market is pricing in that there could potentially be three cuts in total this year.