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Despite Incumbent Risks, Norges Bank Holds Interest at 1.25%

Despite Incumbent Risks, Norges Bank Holds Interest at 1.25%

Walker England, Kara Dailey,

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Talking Points:

  • Norges Bank holds the Key Policy Rate at 1.25% in March
  • Substantial risks were addressed in the assessment, as was a potential rate cut this year
  • USDNOK moves to support

Norges Bank held rates at 1.25% on Thursday, leaving the key policy rate within the established interval of ½ to 1½ percent. Despite a weaker economic outlook, at present, realized outcomes remain in line with those projected in December, giving the central bank reason to pause. However, in their assessment the Executive Board acknowledges the downside risks and consequently the potential need to further reduce the benchmark interest rate.

In support of their current decision, committee members cited a stable unemployment level and an on track inflation rate. Concurrently, unemployment in December held steady at 3.7%, while the employment rate edged up 0.4 percentage points. In addition to adding 25K positions in the final quarter, consumer prices (after taxes) remained at 2.4% in February. This figure lies close to the targeted 2.5%.

However, there are substantial risks at play regarding oil’s directional drift down, threats to wage growth and surrounding market outlooks. Market expectations have notably led several foreign central banks to further engage in eased monetary policy measures. Most recently Sweden’s Riksbank further deepened the repo rate, lowering it by 15 bps to -0.25%. Thus, according to Governor Olsen, there are prospects for a reduction in the key policy rate moving forward.

USD/NOK Weekly Chart

Chart Created by Walker England Using MarketScope2.0

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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