PARIS (MNI) – Norges Bank, Norway’s central bank, Wednesday left
its key policy rate unchanged at 2.25%, one month after raising it by 25
basis points.

Nonetheless, the central bank said its executive board decided that
the policy rate should be raised further over the remainder of 2011, and
the increases may occur “slightly earlier” than previously expected.

In its second quarter monetary policy report, released today along
with the rate decision announcement, Norges said it had decided the
policy rate should remain in a range of interval of 2.25% to 3.25% until
the publication of the next monetary report on October 19.

In the last monetary policy report, published in March, the bank
said it had decided the rate should stay between 1.75% and 2.75% at
least until today’s report. The rate is exactly at the midpoint of that
range.

The central bank said Norway’s economy is “faring well, and
unemployment is declining,” while “inflation is low,” but is expected to
pick up gradually.

“The key policy rate was raised in May and is kept unchanged at
this meeting, and the key policy rate is still projected to increase
gradually through the second half of 2011,” said Deputy Governor Jan F.
Qvigstad.

The central bank projected that inflation would rise over the next
two years towards its 2.5% target. Economic growth should be between 3%
and 4% in the same period, it said.

“The differences between the Norwegian and international economy
entail a risk of a krone appreciation, leading to inflation that is too
low. This suggests proceeding with caution in interest rate setting,”
the bank cautioned.

“On the other hand, experience shows that wage and price inflation
may rapidly accelerate when capacity utilisation becomes high,” it
noted. “The risk that a low interest rate may result in imbalances in
the real economy and a sharp rise in wage and price inflation somewhat
further ahead suggests that the key policy rate should be raised
further.”

It added that “an unexpected jump in activity or in price and cost
inflation may lead to a more pronounced upward shift in the key policy
rate than currently projected.” On the other hand, however, “should the
turbulence in financial markets lead to considerably weaker growth or a
marked krone appreciation, the increase in the interest rate may be
deferred further ahead.”

With one eye on recent developments in the Eurozone’s periphery,
Norges bank noted that “sovereign debt problems in Greece and other
European countries have caused renewed financial turbulence, with the
result that equity prices have fallen and long-term yields are again
very low.”

Nonetheless, the global economy “seems to be maintaining its
momentum,” Norges bank observed. “We assume that the debt problems
facing Greece will be resolved without significant spillover effects on
other countries.”

–Paris Newsroom, +331-42-71-55-40; bwolfson@marketnews.com

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