Norges Bank is sticking to an interest rate outlook that signals the possibility of a cut next month, even after a weaker krone helped boost inflation in Europe’s second-richest nation per capita, Deputy Governor Jan F. Qvigstad said.
Norway’s inflation rate, which has been below the central bank’s target for four years, last month rose to the highest level in more than a year, prompting speculation that policy makers may refrain from further monetary easing.
“We are humble regarding the monthly swings” in inflation data “and don’t want to declare victory yet,” Qvigstad said today in an interview in Stavanger, Norway. “There are no indications so far that suggest a change in the rate path.”
Norges Bank, which has kept the benchmark unchanged for more than 12 months, has signaled its readiness to ease policy and cap a krone rally that’s pushed inflation below target and hurt exporters. The krone has weakened against the euro since March and touched a 15-month low last month, prompting policy makers to keep rates unchanged at their latest meeting on May 8.
The sliding krone pushed price increases, adjusted for taxes and energy prices, to an annual 1.5 percent in April from 0.9 percent in March. Norges Bank has been struggling to bring inflation back to its 2.5 percent target since mid-2009.
Qvigstad said today that the low inflation rate is no “catastrophe.”
Central bankers and politicians from Norway to Switzerland to New Zealand are battling to contain exchange rate gains as investors seek alternatives to the euro and dollar. Weak global growth prospects have prompted central banks in the euro area, the U.S. and Japan to add stimulus, curbing Norway’s scope to damp an overheated housing market without fueling krone gains.
Norwegian policy makers have been reluctant to ease further after cutting in 2011 and 2012 as low rates spur household borrowing and push private debt levels to records. House prices in western Europe’s largest oil exporter have doubled since 2002, while private debt burdens will swell to more than 200 percent of disposable incomes this year, the central bank estimates.
Policy makers will next meet on June 20 to decide on interest rates.
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