Norway’s central bank kept its key interest rate at zero at Thursday’s monetary policy meeting, as expected, but said a rate hike is likely in September.
Norges Bank had previously suggested a rate rise would come in the latter half of 2021, but said Thursday the pace of vaccinations has accelerated, society has begun to gradually reopen and economic activity is rebounding faster than projected.
“In the Committee’s current assessment of the outlook and balance of risks, the policy rate will most likely be raised in September,” said Governor Oystein Olsen.
The central bank said it had placed weight on the contribution of low interest rates to speeding up the return to normal output and employment levels, but reaffirmed its caution around long periods of low interest rates increasing the risk of financial imbalances, including the sharp rise in house prices.
Underlying inflation has slowed to below the 2% target and will remain below target in the coming years, but as long as capacity utilisation is rising the central bank sees limited risk of inflation becoming too low.
“The overall outlook and balance of risks imply a continued expansionary monetary policy stance,” Norges Bank said.
“Further easing of Covid-related restrictions will help a return to more normal economic conditions. This suggests that it will soon be appropriate to raise the policy rate.”