Norway’s central bank raises interest rate, may hike again

On Thursday, Norway's central bank, Norges Bank, increased its policy interest rate by 25 basis points to 4.50%, aiming to curb inflation, a move that analysts had anticipated. The bank's governor, Ida Wolden Bache, affirmed that the central bank may raise the rate again if necessary to achieve the 2% inflation target within a reasonable timeframe.

Following the announcement, the Norwegian crown appreciated against the euro, rising to 10.76 from 10.79 prior to the news. In May, Norges Bank also raised rates by 25 basis points, ahead of the majority of analysts' expectations. However, in August, the bank suggested future monetary policy adjustments would depend on economic circumstances, raising questions about the path ahead.

Out of 28 economists surveyed on September 17-21, 16 anticipated a 25 basis-point hike to 4.50% during the meeting, while 12 believed no change would occur. Seven economists predicted a rate increase to 4.50% in the fourth quarter, but the majority of economists forecast 4.50% as the upper limit for borrowing costs.

During the summer, core inflation in Norway reached 3.0% year-on-year, slightly below the bank's forecast of 3.3% for the year but still exceeding the central bank's target. Though underlying inflation eased over the summer, it remained higher than anticipated. Bache stated that while the outlook for inflation in the near future hasn't materially changed, the central bank may need to maintain higher interest rates for a while to achieve its inflation goal.