Norway c.bank says to keep interest rates on hold for 'some time'
Rates kept unchanged at 4.5%, highest level in 16 years
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Governor says rates would stay on hold "for some time ahead"
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Bank had said in June rates would be on hold to year-end
(Recasts with central bank chief interview, adds analyst in paragraphs 9-10)
By Gwladys Fouche and Terje Solsvik
ARENDAL, Norway, Aug 15 (Reuters) - Norway's central bank will keep interest rates at a 16-year high for "some time" to combat inflation, its governor said on Thursday, after the central bank kept the cost of borrowing unchanged at its monetary policy meeting.
Norway held interest rates at 4.50%, where it has been since December, as
unanimously expected by analysts in a Reuters poll, but made changes to the language used to describe the outlook.
The central bank said its monetary policy must now balance above-target inflation, exacerbated by a falling currency, with a cooling economy that now sees low overall growth.
"Our assessment is that the policy rate will likely remain at today's level for some time ahead, but we will come back in September with a new forecast for the interest rate," Norges Bank Governor Ida Wolden Bache told Reuters.
The central bank's comments differed from its monetary policy statement in June, where it said rates would stay on hold until the end of 2024.
Thursday's statement, released along with the rate decision, made no mention of when the central bank may begin cutting interest rates. Instead, it pointed to "uncertainty about future economic developments", and concerns over how currency movements would impact inflation. A weaker crown currency makes imports more expensive while a stronger one can help dampen inflation.
The Norwegian crown initially weakened after the rate decision but later paired losses to trade largely flat at 11.76 against the euro by 1045 GMT.
Economists said the change in language gave policymakers greater flexibility on the timing of a potential rate cut.
"In our view, the wording suggests that Norges Bank could be open to cutting rates in December if the data supports it, while emphasising that (the crown) remains of great importance," brokers DNB Markets wrote in a note to clients.
"We (maintain) our call for a first cut in March but acknowledge that if the favourable development in inflation continues, there is a clear possibility that Norges Bank could cut in December," DNB said.
While Norway's core inflation eased in July to 3.3% year-on-year, below the central bank's own forecast of 3.7%, price growth still remains well above the central bank's 2.0% target.
Bache said that data since June has provided mixed signals on the path for inflation.
"We have pointed to some factors pulling in the direction of lower inflation: inflation has come in lower-than-expected and unemployment has edged up somewhat more than we expected," she said in an interview after the announcement.
"On the other hand, the exchange rate has depreciated. The economy is weaker than we envisaged. That pulls in the other direction."
Economists have been divided over when Norges Bank might start easing monetary policy amid falling global inflation and a lowering of rates elsewhere, with some expecting a cut in the fourth quarter and others pointing to 2025.
A majority of participants in the Aug. 7-12 poll predicted a first rate cut by year-end and four more reductions in 2025 to end next year at 3.25%, below the central bank's June forecast of 3.75%.
Norges Bank is scheduled to make its next announcement and present revised long-term rate predictions on Sept. 19.
The Bank of England on Aug. 1 became the latest major central bank to start an easing cycle, cutting rates from a 16-year high, and following the lead of Switzerland, Sweden, the European Central Bank and others. (Editing by Toby Chopra and Ana Nicolaci da Costa)
