Norway follows global trend with interest rate hike -
Norway’s central bank

Norway follows global trend with interest rate hike

Norway’s central bank has announced its most significant interest rate hike since 2002, with rates rising to 1.25% from the previous 0.75% level.

Economists expected a 0.25% increase; however, the Norges Bank Monetary Policy and Financial Stability Committee voted for the 0.5% rate increase. The increase was primarily due to growing concerns that inflation was growing faster than manageable, owing to the weakened Norwegian Krone and other global inflation-related pressures.

Norges Bank Governor Ida Wolden Bache said: “International inflation pressures and higher international interest rates do affect policy in Norway, both through the direct effect on our imported inflation and through the exchange rate.

“So higher interest internationally in isolation pull in the direction of a weaker krone, which also influences price prospects here in Norway, so that has contributed to the lifting of our rate path.”

Related article:   Interest rates set for further hikes in coming months
interest rate Norway

Wolden Bache predicted another increase in August, likely of 25 basis points, as a further effort to stabilise high inflation rates, saying: “Based on the committee’s current assessment of the outlook and balance of risks, the policy rate will most likely be raised further to 1.5% in August.”

Like the Bank of England, Norges Bank’s inflation target is currently 2%. However, inflation in Norway increased to 5.4% in April this year, the highest consumer inflation rate in 13 years.

Wolden Bache commented: “A faster rate rise now will reduce the risk of inflation remaining high and the need for a sharper tightening of monetary policy further out.”

Related article:   Why is my mortgage interest rate higher than the bank rate?

Governor Wolden Bache remains confident that the high-interest rates will not affect Norway’s high employment rates, given their tight labour market.

Speaking to CNBC, she said: “Prospects for a more prolonged period of high inflation suggest we need to raise policy rates and to raise policy rates faster and by more than envisaged in March.”

Goldman Sachs said that the 50-point increase was a catch-up effort by Norges Bank and suggested that the increments for tightening up their economy would be 25 basis points at a time. They now expect Norges Bank to vote on 0.25% increases in every meeting until May 2023, which will bring the interest rate to 3%.

Related article:   Is the Bank of England about to go even further with interest rates?

An analyst from Goldman Sachs said they “see risks skewed towards a faster hiking cycle should wage growth continue to strengthen and inflation continue(s) to surprise to the upside.”

They continued: “Should Norges Bank hike by 50bp, we would expect this to happen in September, given the Committee’s strong guidance for a 25bp August hike. Given Norges Bank’s prior forward guidance reliability, we see a high bar to renege on that guidance in August.”

Leave a Comment

Your email address will not be published. Required fields are marked *