Norway’s central bank, the Norges Bank’s Monetary Policy and Financial Stability Committee unanimously raised the policy rate from 0.25 percent to 0.5 percent on Thursday as widely expected. The bank and said more hikes were likely next year although that would depend on the impact of a surge in coronavirus infections and the emergence of the Omicron variant.
Norges Bank’s action was its second hike in three months, as predicted economists polled by Reuters and in line with the central bank’s own plan. Norway’s economy has rebounded in 2021 along with oil and Norges Bank in September became one of the first central banks to hike rates since the start of the pandemic.
Norway is a lesson in foresight and saving for the future and taking account of finite resources and their limitations. This is the antithesis of the US Federal Reserve and Bank of Japan who live in hope and kick the can down the road with endless QE and low rates.
“There is considerable uncertainty about the evolution of the pandemic and its effects on the economy. But if economic developments evolve broadly in line with the projections, the policy rate will most likely be raised in March,” Norges Bank Governor Oeystein Olsen said in a statement.
The monetary policy committee continued to signal three hikes for next year, with the key rate thus expected to rise to 1.25%.
Having contracted by 3.0% in 2020, the Norwegian economy is now expected to grow by 4.1% in 2021, more than the 3.9% predicted three months ago, and will likely see a 3.5% expansion next year, weaker than the previous forecast of 4.5% Norges Bank forecasts.
Norges Bank Rate decision December 2021
At its meeting on 15 December 2021, the Committee decided to raise the policy rate from 0.25 percent to 0.5 percent.
Norges Bank’s Monetary Policy and Financial Stability Committee has unanimously decided to raise the policy rate from 0.25 percent to 0.5 percent.
The upswing in the Norwegian economy has continued. Unemployment has fallen further, and capacity utilisation is estimated to be above a normal level. In recent weeks, the number of new cases and Covid-related hospitalisations have reached a new peak since the onset of the pandemic. Increased infection rates and extensive containment measures are expected to dampen activity in the near term. When infection rates subside further out and containment measures are eased, the economic upswing will likely continue. Higher electricity prices have resulted in elevated CPI inflation, but underlying inflation is lower than the inflation target. Rising wage growth and higher imported goods inflation is expected to push up underlying inflation ahead.
Monetary policy is expansionary. In the Committee’s assessment, the objective of stabilising inflation around the target somewhat further out suggests that the policy rate should be raised towards a more normal level. A gradual normalisation of the policy rate is consistent with continued high employment. Higher interest rates will also help to counter a build-up of financial imbalances.
In its discussion of the balance of risks, the Committee was concerned with the potential economic effects of the pandemic and containment measures in the period ahead. If there is a need for more stringent and protracted containment measures that pull down economic activity through spring next year, further rate hikes may be postponed. The Committee was also concerned with a potentially higher-than-projected rise in domestic wages and prices due to capacity constraints and persistent global price pressures. If there are prospects of persistently high inflation, the policy rate may be raised more quickly.
“There is considerable uncertainty about the evolution of the pandemic and its effects on the economy. But if economic developments evolve broadly in line with the projections, the policy rate will most likely be raised in March”, says Governor Øystein Olsen.
The policy rate forecast is little changed from the September 2021 Monetary Policy Report and indicates a gradual rise in the policy rate in the coming years.
Rate effective from 17 December 2021:
- Policy rate: 0.50 %
- Overnight lending rate: 1.50 %
- Reserve rate: -0.50 %
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