Norway to Keep Rates Unchanged as Weak Krone Boosts InflationSaleha Mohsin
Norway’s central bank is expected to keep interest rates unchanged and stick to a plan to refrain from increases until mid-2015 after a slide in the krone pushed inflation closer to its target.
Norges Bank will leave its overnight deposit rate at 1.5 percent in a decision scheduled to be announced at 10 a.m. tomorrow in Oslo, according to all 18 economists surveyed by Bloomberg. The bank will publish new forecasts for rates and other key economic indicators including gross domestic product.
Central bank Governor Oeystein Olsen last year managed to halt a rally in the currency that hurt exporters and kept inflation below target after warning he may cut rates. The krone has weakened about 3.5 percent against the dollar during the past 12 months, pushing underlying annual inflation to 2.4 percent this year, close to the bank’s 2.5 percent target.
“The Norwegian krone is close to expectations after being on the weaker side,” said Erlend Loedemel, chief economist at Arctic Securities ASA in Oslo. The krone must strengthen “to fall in line with forecasts for the second half of the year, which could pull in the direction of higher rates,” he said. Norges Bank may boost its rate path by 10 to 15 basis points, he said.
In December, Olsen postponed a plan to increase rates by a year as economic growth slowed in Scandinavia’s richest economy. An economic expansion has eased as a housing boom moderates and as stagnant crude prices threaten investments in Norway’s oil-rich economy.
The country’s statistics agency this month lowered its growth forecasts for western Europe’s biggest oil producer through 2016.
Still, a report released last month showed the economy accelerated in the fourth quarter, boosted by consumer spending as registered unemployment remains below 3 percent. The economy expanded 2 percent last year, faster than the 1.75 percent rate predicted by the central bank.
“While we see some softer indications from the real economy and maybe also from inflation, we don’t think Norges Bank is prepared to conclude that the speed has slowed down,” said Kari Due-Andresen, an economist at Svenska Handelsbanken AB. “We’re expecting the interest rate path to be basically the same as it was in December.”