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: May raise rates in the future

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

Norges Bank Governor Ida Walden Bachi said that the Norges Bank’s mandate 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. Affected by the situation in the Middle East, uncertainty is higher than normal. The committee judged that it may need to increase the policy rate at subsequent monetary policy meetings.

The committee believes that it needs to further tighten its monetary policy stance 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 raised. However, recent unexpectedly high inflation makes it difficult to assess core inflation pressures, and uncertainty around oil and gas prices is exceptionally high. Therefore, the committee hopes to wait for more information about the inflation outlook.

Last year, Norway’s policy interest rate was lowered 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 hold steady

Affected by factors such as energy price increases driven by the Middle East conflict and a rebound in inflation pressures, last week, several central banks—including the U.S. 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 decisions among a few central banks: 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%, and 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 particularly challenging. If energy prices remain high for a longer period, central banks may have no choice but to weigh the risk of keeping prices stable against economic downside and potential tightening of the financial environment.

Dan Katz said that for central banks at present, holding steady and waiting has very high “option value.” In economies where the inflation expectations anchor is not sufficiently solid, and in economies that have been plagued by high inflation for the long term, central banks may need to respond more quickly. But for central banks that had previously held steady or are gradually adjusting their policy, they are likely to be able to respond calmly; and whether they decide to shift to a more tightening stance to address inflation risks, or to a more easing stance to address output risks, they are likely to obtain a clearer understanding of rapidly evolving circumstances in advance.

Yang Chao, Chief Strategy Analyst at China Galaxy Securities, said that the fact that the economic cycle and the inflation structure are not synchronized is the starting point for interest-rate policy differentiation across different economies. As for whether the future brings an interest-rate hike cycle, it will depend on whether inflation resumes a systemic upward trend, rather than the baseline situation at the current stage.

(Editor: Wen Jing)

Keywords:

                                                            Interest rates