(Updates with comment from governor in fifth paragraph.)
Oct. 19 (Bloomberg) -- Norway’s central bank kept its benchmark interest rate unchanged and signaled it won’t raise until the second half of next year on concern that a weaker global economy will hurt exports and sap growth.
The overnight deposit rate was kept at 2.25 percent for a fourth meeting, the Oslo-based bank said, as was forecast by 21 of the 22 economists surveyed by Bloomberg. The rate will probably not be raised until after June 2012, the bank said.
“If the turbulence abroad intensifies and the outlook for growth and inflation weakens further, the key policy rate may be reduced,” Governor Oeystein Olsen said in the statement. “If there are prospects for higher growth and inflation, the key rate may rise earlier.”
Norwegian policy makers need to protect the economy from the fallout of Europe’s debt crisis without fueling domestic credit growth as rates stay close to crisis lows. The bank has signaled it wants policy to track Europe as more than 60 percent of Norway’s exports go to the European Union. Euro area leaders have so far failed to contain the debt crisis, forcing the European Central Bank to shelve tightening and resume bond purchases.
The forecast signals unchanged rates for “about a year,” Olsen said in an interview after today’s decision. “There’s only some probability for an interest rate increase during next fall. We haven’t signaled that it will increase 100 percent.”
The krone weakened 0.1 percent to 7.7234 per euro as of 4:08 p.m. in Oslo. It gained 0.2 percent to 5.599 to the dollar. Norway’s two-year yield was little changed at 1.85 percent.
The bank cut its forecast for growth this year in the mainland economy, which excludes oil production and shipping, to 2.75 percent from 3 percent and kept its 3.75 percent estimate for next year unchanged. Inflation will average 1.97 percent in next year’s fourth quarter, 2.27 percent two years from now and 2.41 percent in last three months of 2014, the bank said.
“Norges Bank is too optimistic when it comes to world growth and the time it will take to get Europe going again,” said Kari Due-Andresen, an analyst at Svenska Handelsbanken AB in Oslo and a former central bank economist. “We also believe they are too optimistic about the timing and magnitude of the inflation pick-up.”
Norway’s oil wealth, which is mostly stored in a $530 billion sovereign-wealth fund, has so far shielded it from the worst of the debt crisis. The country is the world’s seventh- largest oil exporter and second-largest gas exporter. Still, the government cut its 2011 growth forecasts for the mainland economy, which excludes oil, gas and shipping, to 2.8 percent from a May forecast of 3.2 percent, citing a deteriorating global outlook. It expects output to grow 3.1 percent next year.
The central bank, which bases policy decisions on non-oil economic and inflation trends, raised rates in May. Norway’s oil wealth and the prospect earlier in the year of interest rate increases helped fuel krone gains, sending the currency to an eight-year high versus the euro on Sept. 8. The bank needs to ensure continued low rates don’t fuel what the financial regulator has warned may become a housing bubble.
Norway’s Financial Supervisory Authority last month recommended tightening mortgage lending standards by reducing loan sizes relative to property values. House prices rose an annual 9.7 percent last month, according to Norway’s Real Estate Brokers Association. Household credit rose an annual 7.2 percent in August, near a 2 1/2-year high, Statistics Norway said.
Consumer price growth has remained below the central bank’s 2.5 percent target since 2009. Norway’s underlying inflation rate, adjusted for taxes, fees and energy prices, climbed to 1.2 percent in September from 0.8 percent the previous month. Registered unemployment dropped to 2.5 percent in September from 2.7 percent in August.
--With assistance from Stephen Treloar in Oslo, Editors: Jonas Bergman, Tasneem Brogger
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