By Maria Martinez
Norway's central bank kept its key interest rate at zero at Thursday's monetary policy meeting, as expected, and reiterated that a rate hike is likely in September.
Norges Bank said the reopening of society after coronavirus-related restrictions has driven a marked rise in activity, and unemployment has fallen further. At the same time, there is still uncertainty as to the evolution of the pandemic and the impact on the Norwegian economy.
A high vaccination rate reduces the need for pandemic-related restrictions but it cannot be ruled out that new virus variants may lead to a retightening of measures, the bank said.
"In the committee's current assessment of the outlook and balance of risks, the policy rate will most likely be raised in September," Governor Oystein Olsen said.
The central bank said it had recognized the contribution of low interest rates to speeding up the return to normal output and employment levels, but reaffirmed its caution regarding long periods of low interest rates increasing the risk of financial imbalances, including sharp rises in house prices.
Underlying inflation has slowed to below the 2% target. Increased activity in the Norwegian economy suggests that inflation will pick up further out, Norges Bank said.
The overall outlook and balance of risks imply a continued expansionary monetary policy stance, Norges Bank said.
At the same time, economic conditions are starting to normalize. "This suggests that it will soon be appropriate to raise the policy rate," Norway's central bank said.
Write to Maria Martinez at maria.martinez@wsj.com