As we predicted in our latest News letter, Norges Bank’s (“Bank of Norway”) Executive Board decided today to reduce the key policy rate by 0.25 percentage point to 1.50 per cent.
Interestingly enough only one out of a dozen Norwegian experts agreed with us. Some even complained about the decision. So for those brave enough to take position can cash in.
We on our side however find it very interesting and good to see that “Bank of Norway” finally seems to have a Governor able to act when needed and not like his predecessors who always were too late.
“The continuing downturn abroad and the strong krone are contributing to keeping inflation low and are weighing on growth in Norway. Against this background, the Executive Board has decided to reduce the key policy rate”, says Governor Øystein Olsen.
Even though the situation in international financial markets has improved somewhat after the turn of the year, there are prospects of low growth and low interest rates for a long time in most advanced economies. Growth in the Norwegian economy is holding up, but growth projections have been lowered somewhat. The krone is strong and inflation is projected to remain between 1¼ – 1½ percent to the end of the year.
The analyses in Monetary Policy Report 1/12 indicate that it will likely take several years until inflation returns to target.
“The current outlook suggests that the key policy rate may remain low longer than projected earlier. There is a high level of uncertainty regarding economic developments, and we have monetary policy leeway in both directions”, says the Governor.
At its meeting today, the Executive Board decided that the key policy rate should be in the interval 1-2 percent in the period to the publication of the next Monetary Policy Report on 20 June 2012, unless the Norwegian economy is exposed to new major shocks.
It is our opinion that the new level will remain for quite a while. The domestic problem with high prices on real-estate, especially in the major cities can easily be solved, but is coursed by inefficient politicians. No country in Western Europe has more space to build on than Norway, and yet areas regulated for building are scares, so golden days for property owners.
Sources; “Norges bank Press release”