The Bank of Norway is doubling down and raising its rate to 1.25%

The Bank of Norway shifted into high gear on Thursday by raising its key rate by 0.5 points to 1.25%, while hinting at an acceleration of monetary tightening in the future with a further hike expected in August.

Prospects for a sustained period of high inflation argue for a faster rise in the policy rate than previously expected, central bank governor Ida Wolden Bache said in a statement.

Rising rates faster now will reduce the risk that inflation will remain high and the need for more monetary policy tightening in the future, she argued.

This is the fourth rate hike in Norway since September, but the previous ones were only 0.25 points each. Few economists had predicted such a sharp increase on Thursday.

Based on the current assessment of the Committee for the Prospects and the Balance of Risks, the key rate will most likely be raised further in August, to 1.5%, specified Ms Wolden Bache.

In an attempt to curb inflation, the central bank will go faster and stronger: while it said until now to expect its key rate to reach 2.5% at the end of 2023, it now says it expects around 3 % the approach of next summer.

Inflation in Norway reached 5.7% on an annual basis in May and underlying inflation, the indicator used by the Bank of Norway which excludes energy prices and tax variations, 3.4%.

This is significantly more than the official monetary policy objective, which aims for core inflation to remain stable at around 2%.

These repeated increases in Norwegian rates are part of a global context of monetary tightening, from the United States to the United Kingdom. The European Central Bank is expected to follow with a rate hike, the first in over a decade, expected in July.

The biggest producer of hydrocarbons in Western Europe, Norway is in a situation of almost full employment: despite the repercussions of the war in Ukraine, the government is counting on a growth of the national economy of 3.6% this year.

source site-96