Norway central bank raises rate to 15-year high, with more to come

Norway central bank (Norges Bank) building in Oslo, Norway, June 23, 2022. REUTERS/Victoria Klesty/File photo

OSLO  – Norway’s central bank raised its key policy rate by 50 basis points (bps) to 3.75 percent on Thursday in a bid to curb inflation, more than expected by a majority of economists surveyed by Reuters, and said it aimed for another hike in August.

Of the 32 economists polled in advance, 24 had anticipated an increase of 25 bps on Thursday while eight had bet on an increase of 50 bps.

The central bank predicted the policy rate would rise to 4.25 percent during the autumn.

“If we do not raise the policy rate, prices and wages could continue to rise rapidly and inflation become entrenched,” Norges Bank Governor Ida Wolden Bache said in a statement.

The Norwegian currency, the crown, strengthened to 11.55 against the euro at 0807 GMT from 11.69 just before the announcement.

In May, Norges Bank said it would “most likely” hike again in June, and official data has since shown higher-than-expected growth in consumer prices and a brighter outlook for many Norwegian companies.

“Today’s hawkish decision shows that Norges Bank means business and is concerned about inflation becoming entrenched,” analysts at Nordea said in a note to clients.

“The decision is justified given that inflation has come in markedly higher than anticipated,” Nordea added.

The hike raises the policy rate to its highest level since the outbreak of the global financial crisis of 2008.

While Norway in 2021 was among the first Western nations to hike rates after the pandemic, its speed of tightening has been slower than in the neighboring eurozone, hitting the currency.

The European Central Bank last week raised its key policy rate and is expected to hike again, while the U.S. Federal Reserve left the cost of borrowing on hold, but signaled that its campaign of tightening will resume.

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