Another country's central bank announces no interest rate cut!

Introduction Norway’s central bank keeps the benchmark interest rate unchanged at 4%

China Fund Reporter Yi Shan

On March 26, Norway’s central bank announced that it would maintain the benchmark interest rate at 4%.

Norway’s Central Bank: Rate Hikes Ahead

The Monetary and Financial Stability Committee of Norway’s central bank decided in a meeting on March 25 to keep the policy interest rate unchanged at 4%.

Norway’s central bank governor Ida Wolden Bache stated that the bank’s responsibility is to keep inflation around 2% in the long term. Inflation has been above the target level for several consecutive years, and the outlook indicates that future inflation will be higher than previously expected. Due to the situation in the Middle East, uncertainty is above normal levels, and the committee judges that a rate hike may be necessary in future monetary policy meetings.

The committee believes that a further tightening of the monetary policy stance is required to bring inflation back to target levels within a reasonable timeframe. The inflation outlook suggests that the policy interest rate may need to be raised. However, recent unexpectedly high inflation makes it difficult to assess core inflation pressures, and the uncertainty surrounding oil and gas prices is exceptionally high. Therefore, the committee wishes to wait for more information regarding the inflation outlook.

Last year, Norway’s policy interest rate was lowered from 4.5% to 4%. The central bank expects that by the end of this year, the policy interest rate will rise to a range of 4.25% to 4.50%.

Central Banks in Many Countries Stand Still

Due to factors such as rising energy prices triggered by Middle Eastern conflicts and a resurgence of inflationary pressures, last week, several central banks, including the Federal Reserve, the European Central Bank, the Bank of England, the Bank of Canada, the Bank of Sweden, and the Swiss National Bank, chose to hold their positions.

A few countries’ central bank decisions diverged: 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 opted to raise rates by 25 basis points to 4.10%.

Dan Katz, the First Deputy Managing Director of the International Monetary Fund, stated that the current policy environment is particularly severe for central banks. If energy prices remain high for an extended period, central banks may have to weigh the risks to price stability against economic downturns and potential tightening of financial conditions.

Dan Katz believes that for central banks today, maintaining a wait-and-see approach has high “option value.” In economies where inflation expectations are not firmly anchored, as well as in economies that have long been troubled by high inflation, central banks may need to react more quickly. However, for central banks that have previously held their positions or are gradually adjusting policies, they are likely to be better positioned to respond calmly; and regardless of whether they decide to shift to a more tightening stance to address inflation risks or to a more accommodative stance to address output risks, they are likely to gain a clearer understanding of rapidly evolving situations in advance.

Yang Chao, chief strategy analyst at China Galaxy Securities, believes that the asynchronous nature of the economic cycle and inflation structure is the starting point for the divergence in interest rate policies across economies. Whether we enter a rate hike cycle in the future will depend on whether inflation rises systematically again, rather than the current baseline scenario.

Note: The cover image of this article was generated by AI.