The time for record low interest rates will likely be over soon, although uncertainty related to the pandemic and new viral variants persist.
Status is updated
The Bank of Norway is keeping the interest rate at a record low of zero percent, as expected.
– As we are now assessing the outlook and risk profile, the key policy rate hike is likely to be raised in September, says Governor Oystin Olsen.
In June, Governor Oistin Olsen announced for the first time that interest rates were likely to be raised in September. Background reopening and increased activity in the economy, as well as further declines in unemployment.
Since then, economic development has been as expected, at the same time as uncertainty remains about the further course of the pandemic and its impact on the Norwegian economy, This was stated in a message from the Central Bank.
“The high vaccination rate reduces the need for infection control measures. However, it cannot be excluded that new viral variants will require new austerity measures.”
Viral surges have created uncertainty about the economic outlook, which may also have affected the krone exchange rate, which is now weaker than expected in the previous report, the bank continues.
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Zero interest since May
Norges Bank cut interest rates by a total of 1.5 percentage points during the first months of the Corona pandemic. Since May last year, the interest rate has been zero percent.
Record low interest rates have put strong pressure on the housing market, with surprisingly strong price growth. However, growth has slowed in recent months, possibly due to expectations of higher interest rates.
Norges Bank notes that a prolonged period of low interest rates increases the risk of exacerbating financial imbalances. At the same time, the Interest Rate Committee noted that growth in home prices has slowed recently after a marked rise through the spring of this year.
Thus, housing price inflation was lower than the central bank’s expectations during the summer.
– The Committee still believes that there is a need for an expansionary monetary policy. At the same time, economic conditions are returning to normal. Olsen says this indicates that it will soon be appropriate to raise the key rate from the current level.
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Today’s meeting is a so-called temporary meeting, with no new interest rate path and outlook for the economy. We’ll combine this with the next interest rate decision on September 23rd only.
There is also no press conference related to today’s decision, but Central Bank Governor Austin Olsen will deliver a speech on the economy in Arendal at 10.30.
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