OSLO CENTER (Nettavisen): Central bank governor Ida Wolden Bache surprised most people when the policy rate was increased to 4.5 percent just before Christmas, a level we have not seen since the financial crisis.
Norges Bank has now held its first interest rate meeting of the year. There it was decided to keep the policy rate unchanged at 4.5 per cent. At the same time, they report that there will be no interest rate cuts in the first place.
Watch the video interview with Central Bank Governor Ida Wolden Bache here:
– As the committee now assesses the outlook and the risk picture, the key interest rate will probably be kept at this level for quite some time to come, reports Norges Bank.
Norges Bank cannot answer what “a good while” means, but when asked by Nettavisen, Wolden Bache says that their previous forecasts suggest interest rate cuts in the autumn.
Inflation is far too high
– The price increase is clearly above the target. The underlying price increase has slowed further, but is still high. Unemployment is low, but growth in the economy is weak. Both price growth and economic activity have been roughly as estimated in the previous report. The crown is stronger than assumed. Overall, the outlook for the Norwegian economy does not appear to have changed significantly since the previous report, reports the central bank.
Core inflation in 2023 ended at 5.5 per cent, while the target is two per cent.
Parts of the market believed in December that the interest rate would be lowered at the first opportunity in January. Since then, belief in a quick turnaround from Norges Bank has disappeared, and the analysts believe that we will only see an interest rate cut after the European Central Bank (ECB) has cut interest rates.
– As the market players interpret the outlook, several central banks will lower their key interest rates during the spring, said the governor of the central bank at Thursday’s press conference.
She also said that, among other things, wage growth can keep interest rates up longer in Norway than in other countries.
Keeps the door open to raising interest rates
Basically, Central Bank Governor Wolden Bache believes that the current interest rate level is sufficiently high to tackle inflation, but is still open to further increases:
– There is uncertainty about the further development of the Norwegian economy. If cost growth in companies remains high, or the krone weakens again, price growth may remain high for longer than previously estimated. Then the committee is prepared to raise the interest rate again. If we experience a sharper slowdown in the Norwegian economy or inflation falls faster, the interest rate may be lowered earlier than we envisioned in December.
DNB: Interest rate cut in September
Just before the interest rate meeting, DNB published a report in which they announced that they expected the interest rate peak to last longer than many had expected.
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– We believe that the current level of the key interest rate has a dampening effect on both inflation and economic activity. As the price rise slows, the need for a tight monetary policy is mitigated, and interest rates can be lowered.
DNB expects that Norges Bank will start with a series of interest rate cuts in September this year, and that they will cut interest rates at every other meeting after that. They believe the cuts will continue until the policy rate reaches 3.25 per cent at the end of 2025.
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Sparebank 1 also believes in interest rate cuts only in the autumn:
– We believe that interest rate cuts are unlikely until after the summer, given the weak krone exchange rate and the prospect of a high wage settlement. There is of course a lot that can happen, such as new shocks to the financial market and we cannot rule out the krone strengthening further. However, we think the central bank in the US also has to wait a little longer than the market thinks before they start cutting interest rates. As a result, the krone will probably not strengthen very much in the future. says chief economist Elisabeth Holvik.