The Norges Bank keeps the benchmark interest rate unchanged at 4%. Central banks of multiple countries hold steady.

Source: China Fund News Author: Yi Shan

On March 26, the Norges Bank announced that it would keep the benchmark interest rate unchanged at 4%.

Norges Bank: Will raise rates in the future

At a meeting on March 25, the Norges Bank’s Monetary Policy and Financial Stability Committee decided to keep the policy rate unchanged at 4%.

Norges Bank Governor Ida Wolden Bache said that the Norges Bank’s role is to keep inflation at around 2% over the long term. Inflation has been above the target level for several consecutive years, and the outlook shows that inflation will be higher than previously expected in the future. Due to the situation in the Middle East, uncertainty is higher than normal; the committee judged that it may need to raise the policy rate at subsequent monetary policy meetings.

The committee believes that it is necessary to further tighten the stance of monetary policy in order to bring inflation back to the target level within a reasonable time frame. The inflation outlook suggests that the policy rate may need to be increased. However, recent inflation has been unexpectedly high, making underlying inflation pressures difficult to assess, and uncertainty around oil and gas prices is unusually high. Therefore, the committee hopes to wait for more information about the inflation outlook.

Last year, Norway’s policy rate was cut from 4.5% to 4%. The Norges Bank said it expects the policy rate to rise to the 4.25%–4.50% range by the end of this year.

Multiple central banks stand pat

Driven by factors such as energy price increases caused by the Middle East conflict and the rebound in inflation pressure, last week, several central banks—including the Federal Reserve, the European Central Bank, the Bank of England, the Bank of Canada, the Riksbank, and the Swiss National Bank—chose to hold steady.

A split in decision-making among a few countries: Brazil’s central bank cut rates by 25 basis points to 14.75%, Russia’s central bank cut rates by 50 basis points to 15%, while Australia’s central bank chose to raise rates by 25 basis points to 4.10%.

Dan Katz, First Deputy Managing Director of the International Monetary Fund, said that for central banks, the current policy environment is especially challenging. If energy prices remain high for a long time, central banks may have to weigh the risk of price stability against the risk of economic downside and tightening potential in the financial environment.

Dan Katz believes that for central banks right now, standing pat and waiting has very high “option value.” In economies where inflation expectations are not anchored firmly enough, and in economies that have been plagued by high inflation for the long term, central banks may need to react more quickly. But for central banks that had either already held steady or are gradually adjusting policy, they are very likely to have the conditions to respond calmly; and regardless of whether they decide to shift to a more tightened stance to address inflation risks, or shift to a more accommodative stance to address output risks, they are very likely to gain a clearer understanding of rapidly evolving conditions in advance.

Yang Chao, Chief Strategy Analyst at China Galaxy Securities, said that the fact that the economic cycle and the inflation structure are out of sync is the starting point for rate-policy divergence across different economies. As for whether the future enters a rate-hiking cycle, it will depend on whether inflation starts rising systematically again, rather than on the benchmark situation in the current phase.

(Editor: Wen Jing)

Keywords:

                                                            Interest rates