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UPDATE 1-Norway's to proceed with caution on rates, defends inflation target system
October 11, 2016 / 11:12 AM / a year ago

UPDATE 1-Norway's to proceed with caution on rates, defends inflation target system

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OSLO, Oct 11 (Reuters) - 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. (Reporting by Ole Petter Skonnord, writing by Terje Solsvik, editing by Gwladys Fouche)

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