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Norwegian Central bank avoids rate hike

Norway's central bank left its key lending rate alone on Wednesday, allowing borrowers to breathe a sigh of relief after a wild week in the financial markets

Norway's central bank left its key lending rate alone on Wednesday, allowing borrowers to breathe a sigh of relief after a wild week in the financial markets.

The Bank of Norway (Norges Bank) did not raise its so-called styringsrenten of 5.75 percent, leaving it at the same level as last month and the month before that.

Several commercial banks have been raising lending rates anyway, because of a worldwide credit crunch. The central bank, however, apparently didn't want to contribute to making funding more costly.

Bank officials cited an unusually high level of uncertainty in the financial markets as part of its reason for keeping the lending rate steady.

Major daily fluctuations in share prices, money market rates, currency exchange rates and oil prices make it difficult to determine lasting effects on inflation and activity in the Norwegian economy, the bank wrote in a statement.

"It's therefore important to keep interest rates unchanged now," said Jan F Qvigstad, the central bank’s vice chairman.

Economists weren't expecting many hints from the central bank as to which direction rates will take in the months to come. Many hope that rates have topped out already, while others expect they'll rise.

Rates have nearly doubled in the past few years, mostly because the central bank has wanted to cool down Norway's hot economy. Now it's higher prices and pay raises that suggest rates may rise again.

Real estate sales, however, have slowed considerably and nearly stopped up in some areas. Residential construction projects also have dried up, and Norwegian consumers have shown clear signs of belt-tightening in recent months.

That could help keep rates steady, or even decline. Sales of new cars, boats and other big-ticket items already are in steep decline, so higher lending rates may not be necessary to discourage such sales.