OSLO (Reuters) – Norway’s central bank raised its key interest rate by half a point on Thursday and said it was considering another hike in August.
The sight deposit rate is now set at 3.75%. Of 32 economists polled by Reuters last week, 24 expected a rise limited to a quarter of a point and eight bet on a rise of 50 basis points.
Norges Bank plans to raise its key rate to 4.25% in the fall.
“If we don’t raise the policy rate, prices and wages could continue to rise rapidly and inflation take hold,” Governor Ida Wolden Bache said in a statement.
On the foreign exchange market, the Norwegian krone strengthened to 11.554 against the euro against 11.64 just before the announcements.
“The ‘hawkish’ decision shows that Norges Bank is determined and concerned about entrenched inflation,” Nordea analysts said in a note to clients. “The decision is justified given that inflation has turned out to be significantly higher than expected.”
While Norway was one of the first Western countries to raise rates in 2021 after the pandemic, its pace of monetary tightening has been slower than in the eurozone, which has weighed on its currency.
The European Central Bank raised its key rates last Thursday and is expected to do so again in July while the Federal Reserve opted for a pause, while signaling that it was not done with rate hikes.
(Victoria Klesty, Laetitia Volga, editing by Kate Entringer)
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