Norway Leaves Key Rate Unchanged as Housing Market Deflates

Norges Bank left its benchmark interest rate unchanged for a 10th meeting as a deflating housing market in Scandinavia’s richest economy removes pressure from the bank to tighten policy.

The deposit rate was kept at 1.5 percent, the Oslo-based central bank said today. The decision was predicted by all but one of the 16 economists surveyed by Bloomberg.

“Inflation in September was lower than expected, but at the same time the krone has depreciated since the previous monetary policy meeting,” Governor Oeystein Olsen said. “In other respects, economic developments both in Norway and abroad have been broadly in line with expectations. The key policy rate has therefore been kept unchanged.”

The bank signaled last month it will move toward higher rates as house prices and consumer debt hover at record levels. Norway, like Switzerland, has struggled to keep its economy balanced as unprecedented monetary easing across the globe distorts asset prices in some of the world’s richest nations.

Underlying inflation, which adjusts for the effect of taxes and energy, reached the bank’s 2.5 percent target in August for the first time in four years, though price growth slowed to 1.7 percent last month.

Growth in Norway’s $500 billion economy is showing signs of stalling as record household debt burdens curb private demand and after persistent krone appreciation last year hurt exports.

Downward Revision

Mainland gross domestic product, which excludes oil and gas production, will expand 1.75 percent this year, the bank forecast in September. In 2012, GDP by that measure grew by 3.4 percent.

“We believe data for unemployment, production, private demand and consumer prices will support our expectation for a downward revision to the interest rate path in December,” Kari Due-Andresen, an economist at Svenska Handelsbanken AB, said in an e-mailed note after the decision.

After appreciating against the euro in 2011 and 2012, the krone lost 11 percent this year following warnings from the central bank that it’s ready to act to stem gains.

“It helps that the kroner is now significantly lower than in September,” Olsen said in an interview in Oslo today.

Norges Bank is trying to balance policy to avoid fueling currency gains without overheating an economy buoyed by a booming petroleum industry and house prices that have doubled since 2002. Private debt has surged to 200 percent of disposable income, according to the central bank.

Debt ratios are still high and rising faster than income, the bank warned in its September monetary report.

It’s “too early to say” if Norges Bank will change its forecast for a summer rate increase, Olsen said. The central bank will wait until its next report in December before presenting updated forecasts, he said.

To contact the reporter on this story: Saleha Mohsin in Oslo at smohsin2@bloomberg.net

To contact the editor responsible for this story: Jonas Bergman at jbergman@bloomberg.net

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