Norway’s central bank defies expectations and raises key interest rate
The key interest rate in Norway has been increased to 4.5 percent, with the 0.25 percentage point rise coming as a surprise to the market as it was expected the policy rate would remain unchanged.
Norway’s central bank, Norges Bank, announced the key policy rate would increase by 0.25 percent to 4.5 percent on Thursday.
“We see that the economy is cooling down, but the price increase is still too high. An increase in interest rates now reduces the risk of price inflation remaining high for a long time. We will probably keep the policy rate at 4.5 percent for quite some time to come,” Central Bank Governor Ida Wolden Bache said.
The bank had previously said after its last hike in September that another increase would arrive in December.
However, many analysts and economists had expected the central bank to hold off from making another increase.
Many companies in Norges Bank’s regional network expected lower growth and weaker economic prospects than the central bank had previously forecasted. This is one of the key factors why many analysts believed the bank would hold off from another rate hike.
News wire Reuters had polled 27 economists ahead of the decision, and 15 expected the interest rate to remain unchanged.
The central bank has implemented 14 interest rate increases since 2021. It has been using the hikes as a measure to try and cut inflation.
Core inflation in Norway, which excludes energy costs, peaked at 7 percent in June. In November, core inflation was measured at 5.8 percent. Despite this being below the bank’s forecast of 6.1 percent, inflation remains above the long-term target of 2 percent.
Norges Bank’s decision bucks the global trend of central banks opting to leave the interest rate unchanged in recent weeks and months.
Following news of the rate increase, the Norwegian krone strengthened by around 10 øre against the euro. Throughout 2023, the krone has slumped to near-historic lows against the euro and other major currencies.
Comments
See Also
Norway’s central bank, Norges Bank, announced the key policy rate would increase by 0.25 percent to 4.5 percent on Thursday.
“We see that the economy is cooling down, but the price increase is still too high. An increase in interest rates now reduces the risk of price inflation remaining high for a long time. We will probably keep the policy rate at 4.5 percent for quite some time to come,” Central Bank Governor Ida Wolden Bache said.
The bank had previously said after its last hike in September that another increase would arrive in December.
However, many analysts and economists had expected the central bank to hold off from making another increase.
Many companies in Norges Bank’s regional network expected lower growth and weaker economic prospects than the central bank had previously forecasted. This is one of the key factors why many analysts believed the bank would hold off from another rate hike.
News wire Reuters had polled 27 economists ahead of the decision, and 15 expected the interest rate to remain unchanged.
The central bank has implemented 14 interest rate increases since 2021. It has been using the hikes as a measure to try and cut inflation.
Core inflation in Norway, which excludes energy costs, peaked at 7 percent in June. In November, core inflation was measured at 5.8 percent. Despite this being below the bank’s forecast of 6.1 percent, inflation remains above the long-term target of 2 percent.
Norges Bank’s decision bucks the global trend of central banks opting to leave the interest rate unchanged in recent weeks and months.
Following news of the rate increase, the Norwegian krone strengthened by around 10 øre against the euro. Throughout 2023, the krone has slumped to near-historic lows against the euro and other major currencies.
Join the conversation in our comments section below. Share your own views and experience and if you have a question or suggestion for our journalists then email us at [email protected].
Please keep comments civil, constructive and on topic – and make sure to read our terms of use before getting involved.
Please log in here to leave a comment.