June 20, 2024 (MLN): Norges Bank's Monetary Policy and Financial Stability Committee decided to keep the policy rate unchanged at 4.5%, said a statement issued by the bank on Thursday.

Based on the Committee's current assessment of the outlook and balance of risks, the policy rate will likely be kept at that level for some time ahead, it said.

The policy rate has been raised significantly in recent years and has contributed to cooling down the Norwegian economy.

Growth in the economy has slowed, and price inflation has declined. At the same time, the employment-to-population ratio is high. Inflation is still running above target, and the rapid rise in business costs will contribute to keeping inflation elevated ahead.

The Committee noted that it was concerned with the possibility that if the policy rate is lowered prematurely, inflation could remain above target for too long.

Since the March Report, inflation has been a little lower than projected, while unemployment has increased as expected, it noted.

On the other hand, Regional Network enterprises report improved prospects, and it appears that wage growth will be higher than envisaged earlier.

This could mean that inflation will be higher ahead than projected in the March Report, it noted.

The Committee judges that the policy rate is sufficiently high to bring inflation down to target within a reasonable time horizon, but that there will be a need to maintain a tight monetary policy stance for somewhat longer than previously projected.

“If the economy evolves as currently envisaged, the policy rate will continue to lie at 4.5% to the end of the year, before gradually being reduced,” says Governor Ida Wolden Bache.

Economic growth is projected to pick up a little in the years ahead, but unemployment is likely to edge up. Inflation is projected to decline further and approach 2% towards the end of 2027.

There is uncertainty about future developments in the Norwegian economy, it said.

If capacity utilization increases or the krone depreciates, wage and price inflation could remain elevated for longer. In that case, there may be a need to raise the policy rate, it stated.

If unemployment rises more than expected, or price inflation declines more rapidly, the policy rate may be lowered earlier than currently envisaged, it added.

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Posted on: 2024-06-20T13:01:01+05:00