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MNI STATE OF PLAY: Norges Leaves Rate Hike Guidance Unchanged

Norges Bank left its policy rate unchanged at zero percent at its January meeting and left guidance over the likely timing of its first rate hike unchanged.

"The policy rate will most likely remain at today's level for some time ahead," Norges's Monetary Policy and Financial Stability Committee said in a statement, adding that conditions suggested keeping it at zero percent "until there are clear signs that economic conditions are normalising." The guidance matched that in December, when it published its full set of quarterly economic projections.

The January meeting, with no updated forecasts, was expected to result in unchanged policy and a holding statement.

The analysis accompanying the decision again noted stability risks posed by strong house price inflation, which could tilt the scales to tightening further down the line.

"House prices have risen markedly since spring, and a long period of low interest rates increases the risk of a build-up of financial imbalances," it said.

STRONG KRONE

The committee noted the marked appreciation of the krone, likely driven higher by a mix of a rise in oil prices and increases in global asset prices.

The near-term outlook has deteriorated for Norway, as a result of a further wave of Covid infections and associated lockdowns hitting domestic and export markets, but the rollout of vaccines has reinforced the likelihood of a recovery in the latter half of 2021.

"Owing to the increase in infection rates and stricter containment measures from the beginning of January, the slowdown in the economy may persist somewhat longer than projected in the December Report," the committee stated.

With inflation above target the rise in the krone should only serve to push inflation back towards the goal, and the committee gave no indication that it would alter the likely timing of a rate hike.

The December MPR showed the policy rate climbing to within touching distance of 1.0% by the end of the three-year forecast horizon.

MNI London Bureau | +44 203-586-2223 | david.robinson@marketnews.com
MNI London Bureau | +44 203-586-2223 | david.robinson@marketnews.com

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