Norway’s central bank surprised the markets on Thursday by announcing a 25 basis points hike in its key policy rate. The move aims to prevent prolonged high inflation levels and ensure economic stability.
Governor Ida Wolden Bache explained that despite the economy cooling down, inflation remained too high. The decision to increase the rate to 4.50% was in contrast to market expectations of no change at 4.25%.
While inflation has been somewhat lower than anticipated, it remains significantly above the bank’s target of 2%. Additionally, wage growth is projected to remain high, and the depreciation of the krone will contribute to elevated inflation levels.
Looking ahead, Norges Bank’s forecast indicates that the policy rate will likely remain around 4.50% until autumn 2024, gradually decreasing thereafter.
This surprising move by Norway’s central bank follows the U.S. Federal Reserve’s decision to keep rates unchanged and suggests future rate cuts. Meanwhile, the Bank of England and European Central Bank are expected to maintain steady rates in their upcoming meetings.
