Norway’s central bank raises rate to 4%


Norway’s central bank raised its benchmark interest rate by 25 basis points (bps) to 4% today to curb inflation, as widely expected, and said it would likely hike again in September.

Today’s hike had been expected by all 31 economists polled by Reuters, and a majority of poll participants predicted the rate would hit a peak of 4.25% by the end of the third quarter, in line with the central bank’s projection.

Norges Bank Governor Ida Wolden Bache

“If the economy evolves as currently anticipated, the policy rate will be raised further in September,” Norges Bank Governor Ida Wolden Bache said in a statement.

Norway’s annual core inflation, which excludes energy costs, stood at 6.4% in July, down from a record 7% in June.

It has remained above the bank’s 2% target since February last year.

“It has turned out more or less as Norges Bank predicted – inflation has been a bit higher which could have encouraged a slightly more aggressive rate increase but then the crown has strengthened a bit,” Nordea economist Kjetil Olsen told broadcaster TV2.

If the currency proves to be weaker than projected or pressures in the economy persist, the policy rate may have to rise to more than 4.25%, Norges Bank said.

“If there is a more pronounced slowdown in the Norwegian economy or inflation declines more rapidly, the policy rate may be lower than envisaged,” the central bank added.

The Norwegian currency, which strengthened against the euro during the early parts of summer, has weakened following the release of milder July inflation data.

The European Central Bank last month raised its key policy rate to 3.75%, but a narrow majority of economists polled by Reuters expect the ECB to temporarily pause its rate-hiking campaign at its September meeting.

Meanwhile, Norway’s central bank governor said interest rates are nearing a peak after today’s hike to 4%. 

“We know that many people are now wondering whether the current monetary policy tightening cycle is nearing the end,” Norges Bank Governor Ida Wolden Bache told a press conference. 

“The answer is that we have come a long way, but we believe that a somewhat higher policy rate will be needed to bring down inflation towards the target within a reasonable horizon,” she said.

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