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And in other central bank decisions…
Norway’s Central Bank has decided to keep its main interest rate on hold at 0.75 per cent – in line with economists’ expectations – but further cuts are expected next year.
Norges Bank wrongfooted the market in September when it decided to cut its deposit rate by a quarter of a percentage point to a record low of 0.75 per cent against a backdrop of continued weakness in oil prices – Norway’s main export.
Prior to today’s decision, Citi economist Kim Jensen predicted the bank would wait until its March meeting to further lower the deposit rate, adding:
We still expect another 25bp cut at some point in 2016.
Norges Bank on Thursday highlighted the toll weak oil prices are taking on the Norwegian economy, warning that household consumption and private sector investment are now expected to be lower than previously expected. From the statement accompanying its latest rate decision:
The effects of the fall in oil prices and the decline in oil investment on the Norwegian economy are gradually becoming evident. Going forward, household consumption and private sector investment are expected to be lower than previously projected. On the other hand, an expansionary fiscal policy will support demand for goods and services. Overall, there are prospects that growth ahead will be somewhat weaker than anticipated. Unemployment is expected to rise slightly more than projected in the September Monetary Policy Report.
Monetary policy is expansionary and is supporting the restructuring of the Norwegian economy. The krone has depreciated and inflation has picked up. A lower key policy rate may increase the risk of a more rapid rise in real estate prices and debt. Uncertainty as to the effects of the monetary policy stance suggests a cautious approach to interest rate setting.
Governor Øystein Olsen added:
An overall assessment of the outlook and balance of risks led the Executive Board to conclude that the key policy rate should be kept unchanged at this meeting. If economic developments are broadly in line with projections, the key policy rate may be reduced in the first half of 2016.
Economists polled by Bloomberg had expected the bank to hold rates this month.