Norges Bank keeps the interest rate constant at 4.5 percent. The interest rate has now remained unchanged since last December. There was little uncertainty about the actual interest rate decision beforehand.
– As we now assess the outlook, the policy rate will probably be kept at the current level for quite some time to come, says Central Bank Governor Ida Wolden Bache.
Norges Bank writes that “price inflation has been lower than expected, and unemployment slightly higher than expected”. “On the other hand, the krone has weakened and is weaker than expected”.
Chief Economist at DNB Markets, Kjersti Haugland, says that many are uncertain.
– But I think we have to wait until March next year before the first interest rate cut, she says.
Tore Grobæk Vamraak, chief economist at Sparebanken Sør I’m not surprised over the conclusion.
– The krone exchange rate is probably the strongest reason for not cutting the interest rate, he says.
The Norwegian crown immediately strengthens a little after the decision.
He will not intervene to strengthen the crown
In the speech of the Governor of the Central Bank, Ida Wolden Bache, about the economic development since the last meeting on the interest rate Among other things, she emphasizes the marked weakening of the summer in the crown.
– The krone has weakened during the summer, especially against several of the main currencies, writes Norges Bank.
A weaker krone exchange rate can lead to more price growth for imported goods and make it more difficult for Norges Bank to reduce price growth.
She also says that several people have asked Norges Bank to take steps to strengthen the krone, including buying krone to strengthen the currency.
Wolden Bache also says that Norges Bank can “intervene in the money market”, if the central bank believes that the krone market needs to work.
– The threshold for us to intervene in the foreign exchange market with the aim of influencing the level of the krone exchange rate is very high. The impact of these interventions is uncertain, she says.
Lower price growth
At the interest rate meeting in June Norges Bank kept the policy rate unchanged at 4.5 percent. It will probably be kept at that level for the rest of the year, was the message.
At the same time, the Governor of the Central Bank Ida Wolden Bache appeared interest rate reporterwhich is indicating three cuts in 2025.
The central bank is trying to bring price inflation down towards the target of around two percent. The interest rate is used as a tool to reduce activity in the economy, and thus price growth.
Last week, the price increase for July went in. That showed core inflationwhich Norges Bank is most concerned about, down to 3.3 percent. Since November, price inflation has fallen in every month.
Weaker crowns
However, the krone has continued to weaken and is at historically low levels.
The experts he noted the crown as an important factor that speaks against the reduction of interest rates, while at the same time decreasing price increases can speak for interest rate cuts.
– The krone exchange rate is still much weaker than Norges Bank assumed, writes chief economist Marius Gonsholt Hov in Handelsbanken’s morning report.
He explains that a weak tariff can help keep price growth up in the long run by making imported goods more expensive.
The krone exchange rate affects the interest rate and expectations of interest rates in a country, and its trading partners. Basically, it is more attractive to invest where the interest rate is high and you will get the most return.
Internationally, several central banks have started to cut interest rates. It includes European Central Bank (ECB), the Swedish Riksbank and central bank of uk. In the US, the market is expecting about four cuts this year, while the central bank says one interest rate cut will happen could be on the table in September.
2024-08-15 14:20:09
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