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NORWAY’S CENTRAL BANK TO PROCEED WITH CAUTION ON RATES, DEFENDS INFLATION TARGET SYSTEM

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OSLO: The effects of changes to monetary policy are less predictable when interest rates drop towards zero, Norway's central bank governor said in a speech on Tuesday, while arguing that the current system of inflation targeting should stay in place
"The policy rate in Norway has come down to a low level, approaching a lower bound. This has increased the uncertainty about the effect of monetary policy," Governor Oeystein Olsen told a conference on monetary policy
"Over the past year, Norges Bank has therefore reacted somewhat less to new information, whether the information has pulled in the direction of a lower or a higher policy rate, than it would have done in a more normal situation. It has been appropriate to proceed with caution," he added
The central bank last cut its key policy rate in March, to an all-time low of 0.50 percent, and has said it will most likely stay at this level for the next few years
The governor defended the country's system of inflation targeting, in place since 2001, ahead of a planned review by Norway's Finance Ministry. "After 15 years of the current regulation, a review is in order. I would, however, emphasise that our experience of the current framework is positive
This suggests a need for adjustments rather than a regime change," Olsen said in prepared remarks. The central bank targets year-on-year core inflation of 2.5 percent over time. On the sidelines of the conference, Olsen said the policy had served the country well
"The signal from me is that we don't need to consider an alternative to the goal of obtaining low, stable inflation," Olsen told Reuters
NORWAY’S CENTRAL BANK TO PROCEED WITH CAUTION ON RATES, DEFENDS INFLATION TARGET SYSTEM Reviewed by Mohamed Hamdino on October 11, 2016 Rating: 5

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