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Norway Central Bank Raises Rate By 25 Bps

Norway’s central bank hiked its key rate by a quarter point, as expected, and signaled another hike in June.

At the first rate decision by Ida Wolden Bache as the governor of Norges Bank, the committee unanimously decided to lift its key policy rate to 0.75 percent from 0.50 percent.

“Based on the Committee’s current assessment of the outlook and balance of risks, the policy rate will most likely be raised further in June”, said Governor Ida Wolden Bache.

The Monetary Policy and Financial Stability Committee observed that the war in Ukraine has led to heightened uncertainty about the economic outlook, but there are still prospects for a continued upswing in the Norwegian economy.

The committee assessed that the objective of stabilizing inflation around the target somewhat further out suggests a higher policy rate.

Uncertainties relating to the economic outlook and households’ response to higher interest rates warrant a gradual rise in the policy rate.

If there are prospects of persistently high inflation, the policy rate may be raised more quickly, the governor said.

The policy rate forecast is higher than in the December Report and indicated a rise in the policy rate to around 2.5 percent at the end of 2023.

David Oxley, an economist at Capital Economics, said “We have pencilled in two additional rate hikes next year, in line with the Bank’s view.” But if anything, there is a good chance that it will front-load the tightening.

The committee today raised the countercyclical capital buffer rate to 2.5 percent, with effect from March 31, 2023.

The buffer rate was raised to 1.5 percent in June 2021 and to 2 percent in December 2021, effective from June 30, 2022 and December 31, 2022, respectively.

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