Norway central bank sees no need for more rate hikes, governor says
Annual speech by Norway's central bank governor
Seeks to maintain trust in 2% inflation target
Says 'inflation is coming down'
Eyes somewhat higher unemployment
Core inflation stands at 5.3% y/y, far above 2% target
By Terje Solsvik
OSLO, Feb 15 (Reuters) -Norway's central bank will not raise interest rates again if the economy develops as expected, Governor Ida Wolden Bache said in a speech on Thursday, but she refrained from weighing in on when policy makers might start cutting borrowing costs.
In her second annual address since taking office in 2022, Bache also said Norges Bank believes inflation will gradually fall in the years ahead towards the official target of around 2%, while unemployment will rise somewhat.
"If the economy evolves as we now expect, additional policy rate hikes will not be needed," Bache told an audience of business leaders and top government officials in Oslo.
In a surprise decision in December, Norges Bank raised its key policy rate to 4.50% to help quell inflation. Last month the bank said the cost of borrowing will likely stay at that level "for some time ahead", but added it could hike again if necessary.
In her speech, Bache emphasised the need to maintain confidence in the central bank's target and said "inflation is coming down".
Norwegian core consumer prices, a category that excludes volatile energy prices and taxes, rose 5.3% year-on-year in January, down from a record 7.0% in June but far exceeding the euro zone's 2.8% inflation rate.
Still, analysts predict that Norges Bank will cut the policy rate later this year from its current 16-year high, but only after the Federal Reserve and the European Central Bank have done so.
A weakening in recent years of Norway's crown against major international currencies has boosted inflation, and the currency move was partly caused by the fact that interest rates among key trading partners had risen more, Bache said.
"Given free capital movements and an inflation target identical to our trading partners, the level of interest rates in Norway cannot deviate substantially from foreign rates over time," she added.
At the same time, the central bank must also take into account its other goal, as set by the finance ministry, of contributing to high and stable output and employment.
"We interpret the mandate to mean that we must give considerable weight to employment also in the current situation with inflation markedly above target," Bache said.
The Norwegian economy grew by 0.7% last year, official data showed this week, down from 3.7% in 2022, and is expected to expand by only 0.1% this year according to the central bank's own forecast released in December.
In her speech, Bache reiterated Norges Bank's long-held view that currency interventions have at best a short-lived effect.
"The threshold for intervening in the foreign exchange market to influence the crown exchange rate is therefore very high," she said.
Reporting by Terje Solsvik
Editing by Gwladys Fouche and Frances Kerry
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