Norway’s central bank, the Norges Bank’s Monetary Policy and Financial Stability Committee unanimously raised the policy benchmark interest rate by 25 bps to 3 percent during its March meeting, bringing borrowing costs to the highest level since February 2009, in line with market expectations. The Committee noted that the latest inflation readings were well above the central bank’s target of 2%. said the policy rate will need to be increased somewhat further to bring inflation in line. The bank had five consecutive hikes by December, equaling the sharpest hike since 2002. The central bank now sees a rise in the policy rate to around 3.5 percent in summer.
“There is considerable uncertainty about future economic developments, but if developments turn out as we now expect, the policy rate will be raised further in May”, says Governor Ida Wolden Bache.”, says Governor Ida Wolden Bache.
Turbulence in international banking markets
In recent weeks, problems at certain US and Swiss banks have led to large movements in global financial markets. Equity markets have fallen, and risk premiums in money and bond markets have increased a little. Expectations for both Norwegian and international policy rates have declined markedly.
We are not seeing any signs of liquidity problems for Norwegian banks. Norwegian banks are profitable, well capitalised and well positioned to cope with losses and market stress. Households and firms appear to have ample access to credit. We are closely monitoring developments and we are always prepared to take the measures required to safeguard financial stability if needed.
Governor Ida Wolden Bache at press conference following announcement of the policy rate.
Inflation
Norway’s annual inflation rate eased to 5.9% in December 2022, below market expectations of 6.1% and from 6.5% in the previous month. It was the softest increase in consumer prices since May.
- Cost mainly slowed for food & non-alcoholic beverages (11.5% vs 12.7% in November), housing & utilities (2.4% vs 4.9%), clothing & footwear (1.4% vs 2.1%), and transport (7.8% vs 9.6%).%).
- Inflation increased for or furnishing, household goods & maintenance (9.5% vs 7.6%), communication (5.2% vs 1.8%), recreation & culture (7.1% vs 5.6%) and restaurants & hotels (7.4% vs 6.6%).
- CPI adjusted for tax changes and excluding energy products, rose 5.8% year-on-year.
- On a monthly basis, consumer prices edged higher to 0.1%, following a 0.2% drop in November.
Norges Bank Rate decision March 2023
At its meeting on 22 March 2023, the Committee decided to raise the policy rate from 2.75 percent to 3 percent.
Policy rate raised to 3 percent
Norges Bank’s Monetary Policy and Financial Stability Committee has unanimously decided to raise the policy rate from 2.75 percent to 3 percent.
The Committee assesses that a higher policy rate is needed to curb inflation. Inflation is markedly above target. Growth in the Norwegian economy is slowing, but economic activity remains high. The labour market is tight, and wage growth is on the rise.
“There is considerable uncertainty about future economic developments, but if developments turn out as we now expect, the policy rate will be raised further in May”, says Governor Ida Wolden Bache.
Since the December Report, energy prices have shown a pronounced fall, and consumer price inflation has been lower than projected. On the other hand, unemployment has been a little lower than projected, and there are signs that the slowdown in the Norwegian economy will be less pronounced than expected in December. Higher wage growth and a weaker krone than projected earlier push up inflation ahead. It is therefore the Committee’s view that the policy rate needs to be increased to a somewhat higher level ahead than projected earlier in order to bring inflation down to target.
The future path of the policy rate will depend on economic developments. If the krone proves weaker than projected, or pressures in the economy persist, a higher policy rate than currently projected may be needed to bring inflation down to target. If inflation falls faster or unemployment rises more than projected, the policy rate may be lower than projected.
The policy rate forecast has been revised up from the December Monetary Policy Report and indicates a rise in the policy rate to around 3.5 percent in summer.
Norway Oil Fund
A further example of this foresight is the ‘oil fund’ which began in 1996 when the oil revenue from the government was transferred to the fund for the first time. The mission of the fund is to provide financial wealth and stability for future generations of Norwegians once the oil revenues declines.
”The Government Pension Fund Global is saving for future generations in Norway. One day the oil will run out, but the return on the fund will continue to benefit the Norwegian population.” via Norway Fund
The next largest Sovereign wealth funds other than China are also oil and gas nations; UAE, China, Kuwait and Saudi Arabia
Largest Sovereign Wealth Funds (2017)
- Norway US$1trillion
- UAE US$828 billion
- China US$814,000
- Kuwait US$524 billion
- Saudi Arabia US$514 billion
Source: Norway, Sovereign wealth fund institute
Clearly the small nordic nation has been very successful in it’s investments and is prudent when comes to monetary policy.
The Fund is managed by Norway’s central bank, Norges Bank. Norges Bank Investment Management ” aims to make the most of the fund’s two distinguishing characteristics, its long-term approach and its considerable size, to generate strong returns and safeguard wealth for future generations.”
The aim of the fund was diversification from oil and to invest in opportunity. “We invest in almost 9,000 companies and have investments in 77 countries.’ Says Norges Bank on their website.
Outside of Oslo Norges Bank has offices in Luxembourg, Tokyo, LONDON NEW YORK SINGAPORE and SHANGHAI to manage their investments. The spread gives you an idea of their focus.
Source: Norges Bank
From The Traders Community Research Desk