Norway keeps rates at record low

Bloomberg

Norway’s central bank left its benchmark rate unchanged at a record low amid signs the economy of western Europe’s biggest oil producer will narrowly avoid a recession thanks to record fiscal and monetary stimulus.
The rate was left at 0.50 percent, as forecast by 14 of 15 analysts surveyed. The bank raised its outlook for rates looking ahead, while keeping a signal that it could lower rates one more time this year.
The krone strengthened 0.3 percent to 9.3379 per euro.
“There are still prospects that the key policy rate may be reduced in the course of the year,” Governor Oeystein Olsen said in a statement.
Norway, while battered by the collapse in oil prices, has managed to avoid the negative rates and unconventional polices that dominate elsewhere.
The government is spending a record amount of its petroleum wealth and successive rate cuts over the past years have weakened the krone, helping non-oil exports.
Key indicators are signaling a bottom may have been reached for the economy, which has lost thousands of oil industry jobs. A report showed unemployment held at 4.6 percent in April, beating an estimate for 4.7 percent. A survey from the central bank earlier this month suggested companies are becoming more positive in their outlook for
production.
In an interview, Prime Minister Erna Solberg said the economy is “showing some positive signs and that unemployment is going down slightly” while warning that the “developments are
fragile.”
Rising along with the oil price, the krone has strengthened by about 3 percent on a trade-weighted basis since January. The price of Brent crude has gained 80 percent since January, though still at a level where big new offshore investments are hard to justify.
The bank kept its forecast for mainland growth unchanged at 0.8 percent for 2016 and lowered its outlook for 2017 to 1.6 percent from 1.8 percent.
“Growth in the Norwegian economy is likely to remain weak in the coming period, even though the upswing in oil prices may reduce uncertainty and push up demand somewhat,” the bank said.
“Should the rapid rise in house prices persist, household vulnerabilities may increase. Inflation has for a period been higher than 2.5 percent, but lower wage growth and a somewhat stronger krone will weigh down on
inflation ahead.”