–Adds Norges Comments On The Krone Exchange Rate

BRUSSELS (MNI) – Norway’s central bank, the Norges Bank, said
Wednesday it had decided to leave its key policy interest rate on hold
at 2.25%, citing weaker global economic prospects, turbulence in
financial markets, and their affect on the outlook for the Norwegian
economy.

“The prospects for the world economy have weakened considerably in
the course of summer. External developments and the turbulence in
financial markets are also affecting the domestic outlook. Against this
background, we have chosen to leave the key policy rate unchanged at
this meeting,” Deputy Governor Jan F. Qvigstad said in a written
statement released by the bank.

The decision marked the third time in a row that Norway’s central
bank has kept rates on hold, since raising them 25 basis points back in
May.

By opting to hold rates again, the bank has deviated from the rate
path it suggested in its June report, which implied two rate hikes
before the end of this year.

Low inflation, weaker output and employment prospects, as well as
higher money market premiums and very low foreign interest rates now
suggest that the key policy rate should be held low for a longer period
than projected in the June Report, Norges said.

The central bank did not project the future trajectory of interest
rates as it frequently does in its interest rate policy announcements.
“There is an unusually high level of uncertainty surrounding the key
policy rate ahead,” it said.

“If price and cost inflation moves up and growth prospects improve,
the key policy rate may be raised,” Norges added. On the other hand, “if
the Norwegian economy is exposed to new major shocks, with a further
deterioration in the outlook for growth and inflation, the key policy
rate may be reduced.”

Consumer price inflation in Norway was lower than the bank had
projected, although housing investment and house prices continued to
rise, said the central bank. As a result, underlying inflation is now
projected to range between 1.00%-1.25%, lower than the 1.00%-1.50% range
anticipated back in August.

Despite the largely external developments affecting the Norwegian
economy, “growth remains robust”, the bank stated.

The bank noted that the country’s currency, the krone, has
fluctuated considerably but that the evolution of the exchange rate was
“broadly in line with that projected” in the bank’s June Monetary
Policy Report.

Following the Swiss National Bank’s decision to set a floor on its
currency to halt the appreciating effect of safe haven flows, Norway’s
krone strengthened considerably as investors sought alternative
safe havens. At the time, Norges said that monetary policy measures
could be used to intervene should the krone rise too high. Since then,
however, it has moved back to its level before the Swiss
decision.

Norges Bank’s executive board said it believed “the high public
debt levels and large fiscal deficits facing many countries pose major
challenges and are likely to put a drag on growth over several years
ahead.”

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