MNI REVIEW: Norges Bank Keeps 0% Rate; Tightening Starts 2022

--Norges Bank Sets Policy Rate At 0%; Forecast Shows Rate at 0.5% By 2023

By David Robinson

     LONDON (MNI) - The Norges Bank left its policy rate unchanged at 0%

Thursday, but changed its collective forecast to show tightening starting in

2022 with the benchmark rate reaching 0.5% in 2023.

     The Monetary Policy and Financial Stability Committee's unanimous policy

decision was expected but the quarterly Monetary Policy Report projections

predicted a return towards normality, with tightening introduced at the end of

the forecast period whereas none had been shown in its May assumptions.

     The policy rate was shown holding at zero percent through 2021 but rising

to 0.1% in 2022 and on up to 0.5% in 2023, compared to May's zero rate

assumption throughout the forecast period

     The committee's view was that while very expansionary monetary policy was

required to support the economic recovery there were risks to ushering in a

prolonged period of ultra-low rates, that could "increase the risk of a build-up

of financial imbalances.

     Reduced the policy rate by 1.25 percentage points in March and by 0.25

percentage point in May to take it to zero percent, the Norges Bank has made

clear that it has no intentions of dipping into negative territory. 

     "The Committee does not envisage making further policy rate cuts," it

stated, with the policy rate forecast implying a rate at the current level over

the next couple of years, followed by a gradual rise as economic conditions

normalise," it said.

     --'V-SHAPE'

     The central bank predicted a near V-shaped recovery, with mainland,

non-oil, GDP rising 3.7% in 2021 after falling 3.5% in 2020, growing a further

2.5% in 2022 and 2.0% in 2023. The growth profile was markedly different than

May's, although overall growth was similar, with the 2021 GDP forecast up 0.7

percentage point on May's figure but the 2022 one 0.8% percentage point lower

and 2023 0.2 point lower.

     Inflation was shown well above the 2.0% target in 2020, coming in at 3.0%

on CPI-ATE measure, and only falling below target in 2022.

     There were some chinks of light in the gloomy recent economic data, with

Norges Bank seeing unemployment falling more than it had expected and activity

picking up faster. The unemployment rate was shown dropping to 3.2% in 2021 from

5.0% in 2020, with this year's forecast down from 6.3% in May.

--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com

[TOPICS: MT$$$$,MX$$$$]