–Adds Comments On Core Inflation, Consumer Demand, Domestic Growth

PARIS (MNI) – Norway’s central bank, the Norges Bank, left its key
policy rate unchanged at 2% on Wednesday, in line with market
expectations.

“Underlying inflation is around 1.5%, approximately as projected,”
Oysten Olsen, the bank’s new governor, said following the first monetary
policy meeting over which he presided. “Both the consideration of
bringing consumer price inflation up to target and the consideration of
stabilising developments in output and employment imply a low key policy
rate,” Olsen said.

The bank’s medium-term inflation target is 2.5%. It said in its
last Monetary Policy Report last October, and repeated in today’s
post-meeting statement, that the policy rate should stay in the range of
1.5% to 2.5% until the next Monetary Policy Report on March 16.

However, the bank noted that in Norway the rise in house prices and
consumer spending has picked up. “The consideration of guarding against
the risk of future financial imbalances that may disturb activity and
inflation somewhat further ahead suggests that the key policy rate
should not be kept low for too long,” it said.

Still, suggesting that it was anxious to avoid having Norwegian
rates too far above those of its economic partners, it warned that “a
strong krone may lead to inflation becoming too low.”

The bank noted that higher energy prices have driven up consumer
price inflation in Norway, but it said that underlying inflation was
still low.

Surveys of Norwegian companies “confirm that growth in the
Norwegian economy has gained a foothold,” the central bank said. It
observed that household demand has “strengthened somewhat more than
expected and housing starts have picked up.” Unemployment is stable,
with “moderate” growth in employment.

Though capacity utilization in the economy is on the upswing, it is
“still probably lower than normal,” Norges Bank said.

On the international front, the central bank noted that growth
among many of Norway’s key trading partners has been higher than
expected — though still “too weak to reduce unemployment
substantially.”

It noted that growth is strong and inflation rising in a number of
emerging market economies. Closer to home, Germany’s sustained growth is
supporting the Eurozone as a whole, while uncertainty is high regarding
the public finances in the euro area’s periphery.

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