FRANKFURT (MNI) – Prospects for weak inflation in Norway still
point to low interest rates, but it is risky to keep the key policy rate
low for too long, Norges Bank Governor Oystein Olsen argued Thursday.
Norway’s economic recovery “now seems to have gained a firm
footing,” the governor observed in the text of his annual address for
delivery in Oslo.
“Low inflation prospects still imply a low interest rate,” he said.
However, “the consideration of guarding against the risk of future
financial imbalances that may disturb activity and inflation somewhat
further ahead suggest that the key policy rate should not be kept low
for too long,” he cautioned.
Norway’s central bank left its key rate at 2% following its last
meeting January 26, the first meeting at which Olsen presided since
assuming office at the start of the year.
“Underlying inflation is around 1.5%, approximately as projected,”
Olsen said at the time. “Both the consideration of bringing consumer
price inflation up to target and the consideration of stabilizing
developments in output and employment imply a low key policy rate.”
The bank’s medium-term inflation target is 2.5%. Experts envision
the bank taking a very cautious approach with respect to tightening this
year. This is because high oil prices will put upward pressure on the
krone, Norway’s currency. Furthermore, inflation remains contained and
the gap between rates in Norway and the Eurozone persists.
In its last monetary policy statement, the bank suggested it was
nervous about having Norwegian rates too far above those of its economic
partners. It warned that “a strong krone may lead to inflation becoming
too low.”
Its next policy meeting is March 16.
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