Norges Bank's monetary policy and financial stability committee decided at its meeting on March 20 to keep the main interest rate unchanged at 4,5%.
Norges Bank on interest rates
– We will probably have to keep interest rates at the current level for a longer period of time so that price dynamics return to the 2% target within a reasonable time, says Central Bank President Ida Wolden Bache.
Monetary policy appears to be tightening, and Norwegian Gospodarka shows short stature. Price dynamics are slowing down, but inflation is still clearly above the target. Business costs have increased significantly in recent years, and high wage growth and the weakening of the krone over the past year will support continued price increases in the future.
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Since Monetary Policy Report No. 4/23, activity in the Norwegian economy has been higher than expected and price growth has been lower than forecast. In assessing the interest rate outlook, the committee expressed concern that if interest rates were cut too early, prices could continue to rise rapidly, partly due to weakening crowns. On the other hand, too high interest rates can slow down the economy more than necessary. The Commission considers that the development of interest rates around the level envisaged in the previous report strikes a good balance between monetary policy objectives.
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Principal interest rate
The forecast we are presenting today shows that the key interest rate will remain at 4,5 percent until the fall, after which it will begin to decline gradually. Economic growth is expected to remain low through the first half of 2024 and then accelerate. Unemployment is likely to increase slightly, but slightly less than estimated in the previous report. Inflation is expected to fall slightly faster this year than previously estimated and approach 2027 percent by the end of 2.
There is uncertainty about the further development of the Norwegian economy. In discussing the risk picture, the committee focused on the main differences between different industries and their impact on the economic outlook. If cost increases remain high or the krona weakens beyond forecasts, price increases may remain high for longer than we currently anticipate. Then the commission is ready to raise the interest rate again. If the Norwegian economy slows down more strongly or inflation falls faster, interest rates may be reduced sooner than we currently assume.
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Source: Norges Bank, Photo: pixabay
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