Fri, Sep 20, 2019 - Page 10 News List

Norway delivers rate hike most were not expecting

Bloomberg

Norway’s central bank yesterday broke further away from the pack, delivering its fourth interest rate increase in a year in an effort to cool an economy stoked by oil investments.

Norges Bank raised its benchmark rate by one-quarter of a percentage point to 1.50 percent, the highest level in almost five years.

Four of the six biggest Nordic banks had expected the move, but most other forecasters did not.

The krone rose as much as 0.5 percent against the euro, but pared most of those gains as Norges Bank signaled it was unlikely to deliver more tightening for now.

“The executive board’s current assessment of the outlook and balance of risks suggests that the policy rate will most likely remain at this level in the coming period,” Norges Bank Governor Oystein Olsen said in a statement.

Dubbed by local economists as one of the “last hawks,” Norges Bank has stood out for its commitment to tightening as the European Central Bank and the US Federal Reserve deliver more stimulus.

Fed Chairman Jerome Powell on Wednesday pointed to the fallout of a global trade dispute as something that should give monetary policy makers pause.

Olsen presented Norway’s rate decision on a day full of central bank announcements.

Moments earlier, the Swiss National Bank had kept its main rate at a record low of minus-0.75 percent, following a cut by the Fed late on Wednesday.

Norway’s decision shows that “the rate path is marginally lower from June and signals that Norges Bank is basically done hiking rates,” said Joachim Bernhardsen, an analyst at Nordea in Oslo, said in a note to clients. “However, they maintain a small hiking bias indicating that a hike is more likely than a cut next year.”

The Norwegian economy has so far proved resilient. That has allowed the government, backed by the world’s largest sovereign-wealth fund, to provide the kind of stimulus that most other European nations only dream of.

Norway is to spend the equivalent of almost 8 percent of GDP this year to plug a budget shortfall. Against that backdrop, unemployment has stayed below 4 percent and inflation is above target.

Olsen has avoided unconventional policies, such as negative rates and asset purchases, and instead opted for a strategy he calls “leaning against the wind” to fight financial imbalances.

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