A need for “a somewhat tighter monetary policy stance” prompted Norway’s central bank to boost its key policy rate by another quarter-point on Thursday. It’s the second rise in recent months, and brings the country’s policy rate up to 4.5 percent.
The main justification for the increase is an inflation rate that the bank’s committee on monetary policy and financial stability thinks is too high. “Inflation has been above target for several years,” stated Norges Bank Governor Ida Wolden Bache. “By raising the policy rate, we are helping to reduce inflation.”
Bache went on to add that she thinks interest rates will remain “elevated” for some time, adding that the committee “is prepared to raise the policy rate further if needed to bring inflation down” to its target of just 2 percent.
Food- and fuel prices continue to rise in Norway, where prices are often already higher than in many other countries. The bank had opted to keep rates unchanged during the summer, after raising them to 4.25 percent in May, but had warned of another increase.
That’s mostly because Norway’s inflation as gauged by its consumer price index (adjusted for tax changes and excluding energy products and now at 3.3 percent) has been “higher than projected.” The committee also noted how the “conflict” in the Middle East “is still creating uncertainty about the inflation outlook” while the Norwegian krone had strengthened.
The committee also cited how market interest rates have increased internationally despite varying moves by central banks. The Bank of England, for example, kept its key interest rate steady last week at 3.75 percent, while the US Federal Reserve raised its own, also by a quarter point to “the interval between 3.75- and 4 percent.”
Norwegian economists and analysts had been almost evenly split over whether the central bank would raise its key interest rate on Thursday. Newspaper Dagens Næringsliv (DN) reported that Nejra Macic, chief economist for Norway’s employers’ organization NHO, thought the committee would keep the rate unchanged, since both capacity utilization and labour market shortages have fallen. Her counterpart at Norway’s largest bank DNB, Oddmund Berg, claimed inflation has been lower than expected and also thought Norges Bank would keep rates steady, while Dane Cekov at SB1 Markets thought they’d rise because of quicker economic growth than expected.
The rate rise is bad news for Norwegians holding large home loans, since commercial banks are quick to raise rates and monthly payments. The central bank noted that its committee’s “assessment of the outlook implies that it will likely be necessary to keep the policy rate elevated for a time.” The next monetary policy decision will be made on November 5.
NewsinEnglish.no/Nina Berglund
