Norway central bank holds rates at zero, hike still two years away

OSLO: Norway's central bank kept its policy interest rate on hold at a record-low zero percent on Thursday, as expected, and said any increase was still likely to be around two years away, in line with its June statement.

Economists polled by Reuters unanimously predicted rates would remain on hold on Thursday, but some had expected the central bank to alter its forward rate curve to flag that an earlier increase could be considered.

Norges Bank has slashed rates three times since March, cutting the cost of borrowing from 1.5pc to cushion the economy from the effects of the COVID-19 pandemic.

"The sharp economic downturn and considerable uncertainty surrounding the outlook suggest keeping the policy rate on hold until there are clear signs that economic conditions are normalising," Governor Oeystein Olsen said in a statement.

"The policy rate forecast is little changed since June ... and implies a rate at the current level over the next couple of years, followed by a gradual rise as activity approaches a more normal level," Norges Bank added.

Norway's currency, the crown, weakened to a four-and-half- month low of 11.16 against the euro at 0819 GMT from 11.08 just before the 0800 GMT announcement.

"This was a little bit disappointing decision as we expected a large raise in the interest rate path," Danske Bank Chief Economist Frank Jullum said.

"However, we still expect the first interest rate hike in December 2021, because we think that both the global and domestic economies are going to rebound faster than the central bank anticipates."

The mainland economy, which excludes oil and gas output, is now expected to contract by 3.6pc this year, slightly more than a June forecast of a 3.5pc fall. In 2021, Norges Banks expects 3.7pc growth, identical to its previous forecast.