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

Source: China Fund News Author: Yishan

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

Norges Bank: Will Raise Interest Rates in the Future

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

Governor Ida Wolden Bache stated that Norges 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 Middle East situation, uncertainty is higher than normal, and the committee judges that it may be necessary to raise the policy rate at upcoming monetary policy meetings.

The committee believes that further tightening of monetary policy is needed to bring inflation back to the target level within a reasonable timeframe. Inflation prospects suggest that the policy rate may need to be increased. However, recent unexpectedly high inflation makes it difficult to assess core inflation pressures, and the uncertainty in oil and gas prices is unusually high. Therefore, the committee prefers to wait for more information on inflation outlook.

Last year, the policy rate in Norway was lowered from 4.5% to 4%. Norges Bank expects the rate to rise to between 4.25% and 4.50% by the end of this year.

Central Banks in Multiple Countries Hold Steady

Affected by rising energy prices and inflation pressures caused by the Middle East conflict, last week, the Federal Reserve, European Central Bank, Bank of England, Bank of Canada, Riksbank (Sweden), and Swiss National Bank all chose to hold steady.

A few central banks showed divergence: Brazil’s central bank cut interest rates by 25 basis points to 14.75%, Russia’s central bank cut by 50 basis points to 15%, while Australia’s central bank raised rates by 25 basis points to 4.10%.

IMF First Deputy Managing Director Dan Karts said that the current policy environment is particularly challenging for central banks. If energy prices remain high for an extended period, central banks may have to weigh the risks of price stability against economic slowdown and potential tightening of the financial environment.

Karts believes that for central banks today, holding steady and observing has high “option value.” In economies where inflation expectations are not firmly anchored, and in those suffering from prolonged high inflation, central banks may need to respond more quickly. However, for central banks that have already held steady or are gradually adjusting policies, they are likely in a position to respond calmly; whether they decide to shift toward a more tightening stance to address inflation risks or a more easing stance to support output, they probably will have clearer insights into rapidly evolving situations beforehand.

Yang Chao, Chief Strategy Analyst at China Galaxy Securities, believes that the mismatch between economic cycles and inflation structures is the starting point for divergence in interest rate policies among economies. Whether the cycle will shift toward rate hikes in the future depends on whether inflation re-accelerates systemically, rather than the current baseline scenario.

(Edited by: Wen Jing)

Keywords: Interest Rate