– There is now an unusually high degree of uncertainty linked to the turbulence in financial markets. There are wide daily swings in money market rates, equity prices, the krone exchange rate and oil and commodity prices. It is difficult to determine how long this pressure will last and the effects on inflation and activity in the Norwegian economy. It is therefore appropriate to keep the interest rate unchanged now, says Deputy Governor Jan F. Qvigstad.
– Norges Bank is following developments closely and providing liquidity in both Norwegian kroner and US dollars to curb the swings in the Norwegian money market.
 
Inflation has picked up markedly since autumn 2007. Underlying inflation now seems to be a little less than 3½ per cent. This is higher than expected and well above the inflation target of 2.5 per cent. Wages are rising rapidly and productivity growth seems to be slackening faster than previously assumed. At the same time, the krone exchange rate has weakened. There are prospects that inflation may remain high over a period ahead.

On the other hand, the crisis in financial markets has deepened. The risk of a long economic downturn abroad has increased. In Norway, there are also clear signs that economic growth is slowing. At the same time, the difference between money market rates and the key policy rate has widened as a result of the financial market turbulence, and the cost of corporate and household borrowing has increased.

For more information, see The Executive Board’s monetary policy decision – background and general assessment.

• Charts and background material