Norway’s central bank likely finished with easing as economy stabilises

Norway seems to have pulled out of a slump caused by the drop in crude prices, thanks in part to generous spending from its sovereign wealth fund.
A ship at an Edvard Grieg oilfield rig in the North Sea. Norway’s oil-based economy took a hit with the fall in the oil price, but analysts say its central bank is not likely to change its rates, signalling that the economy may be stabilising. Hakon Mosvold Larsen / Associated Press
A ship at an Edvard Grieg oilfield rig in the North Sea. Norway’s oil-based economy took a hit with the fall in the oil price, but analysts say its central bank is not likely to change its rates, signalling that the economy may be stabilising. Hakon Mosvold Larsen / Associated Press

Norway’s central bank is predicted to leave its key policy rate unchanged at a record low as the economy of western Europe’s biggest oil producer fights off the biggest slump in crude prices in a generation.

The central bank will keep its key policy rate at 0.5 per cent at a meeting on Thursday, according to 15 of 22 economists surveyed. Seven predict a cut to 0.25 per cent. The bank will likely keep an easing bias to keep the krone from strengthening too much, according to DNB and Nordea Bank. The currency has risen 5 per cent on a trade-weighted basis this year.

“The way the economy looks now, there is no obvious need for a rate cut,” said Harald Magnus Andreassen, the chief economist at Swedbank in Oslo. The bank will likely lift its rate path “a bit” without excluding the possibility that there could be another rate cut, he said.

Norges Bank Governor Oeystein Olsen looks set to avoid the fate of colleagues from Stockholm to Tokyo, who have been forced to cut rates below zero and unleash asset purchase programs. He is helped, of course, by record government spending from the nation’s US$890 billion wealth fund.

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Published: September 18, 2016 04:00 AM

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