Norges Bank Keeps Its Key Rate Unchanged as Expansion Slows

Norway’s central bank kept its main interest rate unchanged and stuck to plans to tighten in mid-2015 as growth cools in Scandinavia’s richest nation.

The deposit rate was kept at 1.5 percent for a 12th meeting, Oslo-based Norges Bank said today. The decision was predicted by all 18 economists in a Bloomberg survey.

“The analysis imply an unchanged key policy rate in the period to summer 2015, followed by a gradual increase,” Governor Oeystein Olsen said in a statement. “The path for the key policy rate remains approximately unchanged from December.”

The economy of western Europe’s largest oil exporter is slowing, weighed down by record consumer debt levels and a cooling housing market. 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. Stagnant crude prices are also threatening to halt a boom in investments in Norway’s oil-rich economy.

Norges Bank raised its interest rate path as it said the krone has been weaker than expected, meaning inflation “will be slightly higher than previously projected.”

The bank sees its key policy rate at 1.5 percent in the third quarter, 1.51 percent in the fourth, and 1.6 percent in the first quarter of 2015, according to its monetary policy report. The rate will reach 1.87 percent by the end of 2015.

Weaker Krone

“Inflation is judged as being slightly on the upside and this together with a slightly weaker krone explains the marginal upward revision,” said Erik Bruce, an analyst at Nordea Bank AB in Oslo.

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 slid about 11 percent against the euro 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 krone strengthened as much as 0.9 percent to 8.2629 against the euro, the biggest increase in more than a month, and traded at 8.2664 as of 12:47 p.m. in Oslo.

Prime Minister Erna Solberg warned this month that the nation may face a “hard landing” unless it’s able to wean its economy off a reliance on oil and bring down production costs. The country has used its oil wealth, which it has funneled into an $840 billion sovereign fund, to shield itself from recessions in Europe.

Growth Momentum

Statoil ASA, Norway’s biggest oil producer, said last month it would cut planned investments by 8 percent over the next three years amid a stagnant oil price and rising costs. Crude prices have slid about 16 percent to $107 a barrel since 2011.

Even so, 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.

“The economic outlook hasn’t deteriorated further, but there’s actually been signs of growth momentum picking up,” Erica Blomgren, chief strategist at SEB AB, said before the decision. “The uncertainty surrounding the outlook for inflation and growth has been reduced.”

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