Norway’s central bank raised its benchmark interest rate on Thursday as expected and said it now plans to raise it at a faster pace than previously expected to contain inflation and a rapidly growing economy.
Norges Bank’s monetary policy committee raised the overnight deposit rate from 0.50% to 0.75%, its third hike since September, as a Reuters poll of economists predicted unanimously. and in accordance with the central bank’s plan.
While the war in Ukraine has led to heightened uncertainty about the economic outlook, prospects for a continued recovery in Norway’s economy remain, the central bank said.
“Based on the current assessment by the Outlook and Balance of Risks Committee, the policy rate will most likely be raised further in June,” Governor Ida Wolden Bache said, presenting the Bank’s first rate decision. bank since she took the helm.
The central bank has predicted that the demand deposit rate could reach 2.5% by the end of 2023, after previously indicating a rate of 1.75%.
“Higher capacity utilization, rising wage growth and stronger external price impulses will drive up inflation,” the bank said in its monetary policy report.
Norges Bank said it now expects to make eight quarter-percent rate hikes by the end of 2023, including Thursday’s decision, three more than the central bank’s previous projection and more than the six hikes predicted by economists.
Asked if half-percentage-point moves were possible, Wolden Bache said rates could potentially rise in larger increments.
“If there is a prospect of more permanent high inflation, rates could rise more than the rate path indicates. In this case, the rates could be increased at intermediate meetings or by more than 25 points,” she told a press conference.
Norges Bank normally seeks to change policy only at its four main meetings of the year, but also holds four interim meetings when rates could be adjusted if necessary.
Norway’s currency, the krone, weakened slightly to 9.48 against the euro at 10:44 GMT from 9.47 just before Norges Bank’s announcement, but was still trading near its highest level since late 2018 after rebounding in recent weeks.
Bache became governor on March 1 and is due to step down when NATO Secretary General Jens Stoltenberg takes office “around December 1”.
That could change, however, as Norwegian media reported on Thursday that Stoltenberg could stay at NATO for another year. Bache declined to comment on the information.
Norway is Western Europe’s largest oil and gas producer, exporting around four million barrels of oil equivalent per day, offering energy companies and the state a big boost to their revenues after the price spike oil in recent months.
“As we have said, Norway’s status as an energy power means that it is better placed than most to deal with the disruptions associated with the war in Ukraine, and will even benefit from it,” said writes Capital Economics in a note to clients.
The US Federal Reserve and the Bank of England both hiked rates last week, while the European Central Bank accelerated its exit from unconventional stimulus as energy prices soar and the global economy is leaving the pandemic behind.
Norway’s economy rebounded strongly last year from the COVID-19 pandemic, and Norges Bank in September became one of the first central banks to raise rates since the pandemic began.
The committee highlighted the war in Ukraine and the potential for weaker global growth amid rising inflation among the risks it discussed at the meeting.
He also discussed the risks posed by accelerating price and wage inflation due to capacity constraints.
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