Norwegian Central Bank, Norges Bank, has decided to keep its policy rate unchanged at 4.5% despite signs that inflation is edging closer to the rate of the eurozone. The bank stated that the time to ease monetary policy is approaching, but they see weaknesses in the Norwegian economy that prevent them from cutting rates at the moment.
The bank highlighted that the depreciation of the krone is expected to limit further disinflation. Unemployment has slightly increased, and rising business costs also contribute to the decision to keep rates steady. However, the bank did not rule out the possibility of cutting rates faster if inflation returns to target sooner or if there is a more pronounced economic slowdown.
The IMF has also recommended a restrictive monetary policy for Norway, citing a slowdown in GDP growth in 2023 but expecting a gradual rebound to 1.5% in the current year. The IMF identified improving unemployment, raising productivity, and controlling public expenditure as key tasks for policymakers to support the country’s strong economic performance.
Despite the pressure to follow the recent rate cuts by the ECB, Norges Bank remains cautious about the state of the Norwegian economy and believes that the current policy stance is appropriate for the time being. The bank’s decision reflects a careful balancing act between supporting economic growth and maintaining price stability in the face of both internal and external challenges.
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