While international central banks are expected to cut interest rates next year, the head of the Norwegian central bank will not talk about cuts until inflation falls further.
Norges Bank joins the ranks of major central banks that are now pausing interest rate hikes, perhaps for good this time. In both the United States and the European Union, there are more and more people who believe that the next change will be lower interest rates.
– Price inflation is still very high, so it is too early to talk about interest rate cuts now, Central Bank Governor Ida Wolden-Basch tells E24 after today’s press conference.
In the forecast from September, interest rates were expected to be cut at the beginning of 2025. And on today press release It is noteworthy that the last interest rate hike announced in December may not happen, if the bank becomes more certain that price inflation is on the way to decline.
– Does this also mean that the interest rate cut could come earlier?
– Now we have not provided new forecasts, and we have received some new information since the last interest rate meeting. But the truth is that price growth figures and the krone exchange rate fluctuate a lot. Welden Bash says the news since last time has gone in a slightly different direction.
– It is true that price inflation has decreased. She adds that economic activity was also somewhat lower than expected, but then the krone exchange rate weakened more than we expected, and that will have an impact on future price expectations.
– There will likely be a need to maintain the right of control for some time to bring price growth back to target.
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The weak krone makes it more difficult to reduce price inflation to the 2% target. Therefore, the depreciation of the krone could be an obstacle to lowering interest rates.
Disturbances in financial markets related to war and rising international interest rates, as we have seen for some time, can also scare investors away from the krone. In such cases, it is preferable to use larger and safer currencies such as the dollar and the euro. They also strengthened against the Kron.
Could this uncertainty lead to Norway having to keep interest rates higher for a longer period of time?
– After all, we do not have any targets for the krone exchange rate with which we manage. We believe that monetary policy and the difference in interest rates here at home and abroad have an impact on the krone exchange rate.
But short-term fluctuations in the krone exchange rate can be large, and can be caused specifically by factors such as turmoil in the financial market, she further says.
– All other things being equal, a weaker krone could contribute to price growth remaining high for longer here at home, even if international price expectations decline, she adds.
The Governor of the Central Bank confirms that determining the interest rate is a balance between many factors.
– We will set the interest rate so that price growth returns to the target, but how quickly will also depend on developments in employment and the real economy. We do not want to raise interest rates too much to overcome rising prices.
Walden-Bash is concerned with balancing the risks of too much policy and the risks of too little.
– If we tighten monetary policy too little, prices may continue to rise rapidly, partly because the krone exchange rate may weaken (…) but if we tighten policy too much, we slow the economy too much. We want to avoid that.
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– What do you think of the krone exchange rate if interest rates are reduced faster in other countries?
We have expectations from the previous report that indicated that the krone will strengthen somewhat over time.
-We believe that monetary policy and interest rates have an impact on the krone exchange rate, but there are also many other factors that affect fluctuations in the krone exchange rate.
The krone has fluctuated a lot in the past year. At the time of writing, the cost of the euro was 16 percent higher, and just under 12 Norwegian kroner.
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