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Norges Bank Retains Interest Rate At Zero Percent

Norway’s central bank kept its key interest rate unchanged at zero, as widely expected, on Thursday.

The Monetary Policy and Financial Stability Committee unanimously decided to retain the policy rate at zero percent, Norges Bank said in a statement.

In May, the interest rate was reduced from 0.25 percent after a cumulative 125 basis points reduction in two extraordinary sessions in March from 1.50 percent.

“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 ?ystein Olsen, said.

The bank repeated that the interest rate will remain at the current level over the next couple of years, followed by a gradual rise as activity approaches a more normal level.

Policymakers observed that the increase in the coronavirus infection rates may put a brake on the upswing in economic activity in the coming period. It will take time for output and employment to return to pre-pandemic levels, the committee noted.

Underlying inflation remained above the target, but the krone appreciation since March and prospects for low wage growth suggest that it will moderate, the bank said.

The central bank is likely to raise the countercyclical capital buffer before it touches interest rates, possibly as soon as early next year, David Oxley, an economist at Capital Economics, said.

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