Norway Central Bank Signals Rate Hike In September

Norway's central bank signaled an interest rate hike in September as the economic activity rebounded at a faster than expected pace and inflation remained below the target.

The Monetary Policy and Financial Stability Committee of Norges Bank unanimously decided to hold the policy rate at zero percent.

In the Committee's current assessment of the outlook and balance of risks, the policy rate will most likely be raised in September," Governor Øystein Olsen, said.

The policy rate path implies a gradual rate increase from autumn, followed by a further rise in the coming years to just above 1.5 percent in the course of 2024.

A normalization of the policy rate reflects a return of economic activity to a normal level.

Further easing of Covid-related restrictions will help a return to more normal economic conditions, the bank said. This suggests that it will soon be appropriate to raise the policy rate from the current level.

Although there is still uncertainty regarding the evolution of the pandemic, economic activity seems to be rebounding sharply and somewhat faster than projected earlier, Olsen noted.

Economic growth is expected to rebound strongly through summer, and mainland GDP is projected to increase 0.8 percent in the second quarter of 2021 and 3.2 percent in the third quarter. Annual growth in mainland GDP is projected at 3.8 percent this year.

Activity in the mainland economy will then have returned to its pre-pandemic level in the third quarter, the bank said.

On price front, the bank observed that the krone appreciation since 2020 and prospects for moderate wage growth suggest that inflation in Norway will remain below target in the coming years.

As long as capacity utilization is rising, there is limited risk of inflation becoming too low, the bank said.

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