Norges Bank holds key interest rate at 4.25 percent

Norges Bank has kept Norway’s key interest rate unchanged at 4.25 percent, NRK reported on Thursday. The decision was widely expected by analysts at banks and financial institutions.

“Price growth has fallen over the summer and been lower than expected. It is pleasing that price growth has slowed, but it is still too high, and it is too early to conclude that the inflation outlook has changed significantly,” central bank governor Ida Wolden Bache said.

She added that it could still become necessary to raise the interest rate.

Norges Bank said capacity utilisation in the Norwegian economy appeared to be close to a normal level, but was declining.

Consumer prices rose 3 percent from July last year to July this year. Core inflation was 2.7 percent, below the central bank’s expectations.

Norges Bank said the conflict in the Middle East continued to create uncertainty about the price outlook. Oil spot and futures prices had changed little since June, while gas prices had risen somewhat. The krone weakened earlier in the summer but had since strengthened slightly.

In June, Bache said the central bank could raise rates at one of its next meetings. Since then, inflation figures have been lower than Norges Bank expected.

Handelsbanken economist Nora Vie Holm said a rate increase would have been highly surprising. DNB Carnegie chief economist Kjersti Haugland also said it was highly likely that the rate would remain at 4.25 percent, citing two inflation figures this summer that were significantly below the central bank’s forecasts.

Norges Bank sets the key interest rate eight times a year. The rate affects lending rates at banks and household housing costs.