–Further Rate Hike Later Than Planned

FRANKFURT (MNI) – The Norges Bank left its key policy rate
unchanged at 2.0% on Wednesday and said that another rate hike might be
later than previously planned.

Norges Bank Deputy Governor Jan Qvigstad said in a press release
that “the moderate recovery in the Norwegian economy is continuing, and
inflation has moved broadly in line with projections.”

The central bank targets an inflation rate of 2.5%.

However, “the turmoil in global financial markets is creating
uncertainty with regard to economic developments,” he cautioned.

“This suggests that the interest rate should be kept unchanged for
a period and that the further increase will occur later than previously
envisaged,” he concluded.

“Many countries are compelled to implement substantial fiscal
tightening. This will dampen economic activity and may have an impact on
other countries, both within and outside Europe,” he added.

The projections in the bank’s Monetary Policy report, also released
today, “are based on the assumption that the turmoil in financial
markets will gradually pass. Interest rates abroad are nonetheless
expected to remain low for a fairly long period.”

“The risk of prolonged turbulence in financial markets, resulting
in a weakened outlook for inflation, output and employment in the
Norwegian economy, suggests that the increase in the key policy rate
should be postponed,” the bank said.

“On the other hand, interest rates in Norway are low. The
consideration of guarding against the risk of future financial
imbalances that may disturb activity and inflation somewhat further
ahead suggests that the interest rate should be brought closer to a more
normal level,” it explained.

The Executive Board’s strategy is that the key policy rate should
be between 1.25% and 2.5% until the publication of the next Monetary
Policy Report on October 27, “unless the Norwegian economy is exposed to
new major shocks,” the press release said.

The bank raised its rate by 25 basis point at the last monetary
policy meeting on May 5, and indicated at the time that it would
continue to raise them gradually.

The central bank began hiking rates last year, from an all-time low
of 1.25%, as its economy had weathered the financial crisis better than
most. However, the debt crisis in Europe has cast a shadow over Norway
as well.

The next monetary policy meeting is scheduled for August 11.

–Frankurt newsroom, +49-69-720-142; frankfurt@marketnews.com

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