Norway’s central bank made a significant move by raising its key policy rate to a 15-year high of 3.75% in an effort to tackle inflation. This decision, surpassing the expectations of most economists surveyed by Reuters, demonstrates the bank’s commitment to addressing the issue. Furthermore, they have announced their intention to implement another rate hike in August.
Out of the 32 economists surveyed prior to the announcement, 24 had predicted a 25 basis points (bps) increase, while eight had placed their bets on a 50 bps increase. The central bank’s forecast suggests that the policy rate may reach 4.25% in the coming autumn months.
Ida Wolden Bache, the Governor of Norges Bank, highlighted the need for this rate hike, stating that failure to do so could lead to further rapid increases in prices and wages, eventually leading to entrenched inflation. Consequently, the Norwegian crown, the country’s currency, gained strength against the euro following the announcement, rising from 11.69 to 11.55 at 0807 GMT.
Norges Bank’s decision to raise rates in June reaffirms their seriousness in combating the issue of inflation, as evidenced by the higher-than-expected growth in consumer prices and the positive outlook for Norwegian companies according to official data. Nordea analysts emphasized the bank’s firm stance on inflation, remarking that today’s hawkish decision demonstrates their commitment to addressing the problem. They further justified the rate hike by noting the substantial difference between actual and anticipated inflation.
This increase in the policy rate is the highest level observed since the global financial crisis of 2008. While Norway was among the first Western nations to raise rates after the pandemic in 2021, the pace of tightening has been relatively slower compared to the neighboring eurozone, which has had an impact on the currency.
In contrast, the European Central Bank recently raised its key policy rate and is expected to implement further hikes. Meanwhile, the U.S. Federal Reserve has kept borrowing costs steady but has indicated its intention to resume its tightening campaign.