The Central Bank of Norway (Norges Bank) left the main interest rate at the unchanged level of 1 percent after the meeting on monetary policy today. It was a decision in line with market expectations. However, the Norges Bank communication was more important than the decision itself.
The Norwegian central bank has been systematically raising the main interest rate from 0.5 to 1 percent since the second half of last year, after from 2014 it cut the interest rate from 1.5 to 0.5 percent in 2018. From the end of last year to the beginning of 2019 Norges Bank seemed to be the only central bank in the world, from developed countries, which will be able to raise interest rates, while the other banks will rather consider monetary easing or interest rates stabilization. This approach has also been confirmed today.
According to the central bank, the capacity utilisation in the Norwegian economy was slightly above the normal level, and core inflation was slightly higher than the inflation target of 2 percent. Policy makers are still expecting interest rates to rise in the next six months despite uncertainty about global changes. The chairman of Norges Bank Oystein Olsen in the text of the speech at the hearing before the Standing Committee on Finance and Economic Affairs said that "the plan is to gradually move to a more normal level of interest rates".
It is possible, therefore, that in June we could see another interest rate increase to the level of 1.25 percent, and it is possible that the next one will take place in December. Everything will continue to depend on the global situation, oil prices, as well as the Norwegian currency, whose relative weakness also affects inflation.
Chart: EURNOK, D1. Conotoxia trading platform.
The EUR/NOK has returned to the earlier important resistance area, which was set by the region 9.83-9.88. If the area is defended, the chances of NOK strengthening may increase due to the divergence in the monetary policy pursued between the Bank of Norway and the European Central Bank.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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