• By


The Scandinavian country is rich in oil and gas and its overall fiscal position remains enviable with no net debt and among the highest levels of economic output per capita in the world.

But to set monetary policy, Norway’s central bank, Norges Bank, prefers to look beyond the effects of the volatile, oil-price-driven energy sector to the mainland economy which follows the business cycle like any other.

In the short term, Norwegian monetary policy will take its cue from an assessment of whether the economic outlook globally is improving.

Norges Bank will look in particular to see if demand is rebounding in the struggling euro zone. If it does, that would boost Norway’s depressed exports and push an already low unemployment rate still lower.

The inflationary impulse that would send to the economy could get consumer price growth moving up closer to the central bank’s 2.5% target from around 2%.  That could spur the bank to shorten the time frame for future rate hikes.

The Norwegian mainland economy is stuttering as dipping house prices have sapped households’ willingness to spend and demand from crisis-hit Europe for Norwegian goods has remained muted. These trends have led to a lack of price pressure.

At its last policy meeting in early December, Norges Bank’s board decided to hold the benchmark interest rate at 1.5% and once again push rate rises further into the future.  Current forecasts suggest borrowing costs won’t rise until sometime after summer 2015.

The bank has preferred to tweak its forecasts rather than cut rates outright, something it hasn’t done since March 2012. That is in part because of its concern that cutting borrowing costs could send a signal to already highly-indebted households to borrow still more, causing instability in the economy.



for economic news and analysis
for central banking news and analysis

Get WSJ economic analysis delivered to your inbox:


Sign up for the Real Time Economics daily summary