Norges bank leaves key rate unchanged at zero

Bloomberg

Norway’s central bank signalled it might be ready to raise its main interest rate from a crisis low in about two years, as an historic wave of stimulus helps revive the economy.
The bank left its benchmark deposit rate at a record low of zero, as expected, after delivering three cuts earlier in the year to steer the richest Nordic economy through the Covid-19 crisis.
“The Committee’s current assessment of the outlook and balance of risks suggests that the policy rate will most likely remain at today’s level for some time ahead, Norges Bank Governor Oystein Olsen said in a statement. But the bank also pointed to the pace of Norway’s recovery as grounds for some optimism.
“Activity picked up faster than expected. Unemployment has fallen more than anticipated and oil prices have risen. Activity is nevertheless substantially lower than at start of year, and there is considerable uncertainty surrounding path to recovery,” Norges Bank said.
In its full Monetary Policy Report, the bank indicated it may be ready to raise rates again from 2022, with the benchmark set to reach 0.65% by the end of the following year. It had previously signaled hikes wouldn’t be possible until the end of 2023.
Norges Bank sees Norway’s mainland economy shrinking 3.5% this year. It had previously expected a contraction of 5.2%. Next year, the economy is estimated grow 3.7%, it said.
Norway’s krone “seems to like the combination of stable rates outlook and the upgrade to the growth outlook,” said Valentin Marinov, a
strategist at Credit Agricole.
Norges Bank has gone to historic lengths to support the economy this year, wiping 1.5 percentage points off the policy rate, threatening currency interventions and providing banks with cheap credit. As western Europe’s biggest oil exporter, Norway has faced a double crisis, with an unprecedented slump in crude prices adding to the economic devastation caused by Covid-19.
But recent data suggest the worst might be over. The government of Prime Minister Erna Solberg was quick to impose a strict lockdown, bringing Covid-19 contagion rates under control and allowing Norway to reopen much of the economy sooner than others.
What’s more, Norway’s status as the owner of the world’s biggest sovereign wealth fund gives the government considerably more scope to provide fiscal support than many other countries. Solberg’s administration has already pledged record measures to support the labor market and businesses. The government plans to withdraw a record 368 billion kroner ($39 billion) from its wealth fund to cover the extra spending.