Yahoo Finance Norway Holds Rate at 4.5% as Weak Krone Worries Officials
(Bloomberg) -- Norway’s central bank held borrowing costs steady for an eighth month and shed little light on when easing might begin, given risks to the inflation outlook from a weaker krone.
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Norges Bank kept the key deposit rate at 4.5%, the highest since December 2008, as predicted by all economists surveyed by Bloomberg. Weighing the risks, policymakers were “particularly concerned with developments in the krone exchange rate and the potential implications for inflation,” adding that “the krone has depreciated and is weaker than assumed.”
The key rate “will likely be kept at the current level for some time ahead,” Governor Ida Wolden Bache said in a statement on Thursday. She declined to specify the timing to reporters at a news conference in Arendal, Norway, as no new forecasts were produced for the interim meeting.
The krone gained after the announcement, strengthening more than 0.3% to 11.7678 per euro. The currency is rebounding from its weakest level since March 2020 hit last week amid a dramatic positioning unwind in higher-risk assets.
The less liquid krone, which is more susceptible to global market volatility, is one of the worst performers in the Group-of-10 this year, enduring a particular blow since July. But the Norges Bank decision to keep rates steady is seen as supportive, preserving the krone’s rate advantage against peers.
The decision underscores the central bank’s stance as one of the most aggressively hawkish monetary authorities in the rich world, contrasting with neighboring Sweden and the euro area where policymakers have already started easing financial conditions.
“The concern about the krone is taking a lot of Norges Bank’s attention and if the major central banks continue to cut, or start to cut, this fall — which is what markets expect — I think they will feel more comfortable,” Amanda Sundstrom, interim chief strategist for Norway at SEB AB, said by phone.
“We don’t think the takeaway should be that it will take even longer before they cut, but rather that they will take in new information before the September meeting, when they’ll publish new forecasts,” she said, adding that inflation will be the main factor that determines the level of borrowing costs.
While inflation in the energy-rich Nordic economy has slowed more this year than central bank officials expected, they are hamstrung by a new bout of weakening of the krone that risks reviving imported price growth. A hike isn’t ruled out, should the inflation rate remain higher for longer than forecast, the officials said.
Traders in overnight swaps now price in 43 basis points of cuts by the January meeting versus their bets of 50 basis points as of Wednesday.
Norges Bank has a so-called flexible inflation-targeting mandate, which allows policymakers to take time to bring price growth down to their 2% goal as they also need to contribute to high and stable employment. In an update of the strategy in May, rate-setters articulated that “considerable weight shall be given to employment,” also when inflation deviates significantly from the target.
There have recently been suggestions by “some observers” that “the central bank should be given more instruments and should intervene in the foreign-exchange market,” Wolden Bache said. She disagreed, saying Norges Bank has “sufficient tools to deliver on the mandate.”
“The threshold for intervening in the FX market with the aim of influencing the krone exchange rate is very high,” she said at the news conference, also reiterating her earlier comments that the effects of such moves would be “uncertain.”
--With assistance from Niclas Rolander, Alice Atkins, Joel Rinneby, Stephen Treloar, Alastair Reed, Heidi Taksdal Skjeseth and Thomas Hall.
(Updates with comments from the governor from 12th paragraph.)
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