Norway announces 50 basis point hike to interest rates, largest for 20 years

Norway’s central bank, also known as Norges Bank, in Oslo, Norway.

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Norway’s central bank announced a 50-basis-point hike to its benchmark interest rate on Thursday, the country’s largest single increase since 2002.

The move takes the policy rate from 0.75% to 1.25%, and Norges Bank Governor Ida Wolden Bache said in a statement that it will likely be raised to 1.5% in August.

The bank’s Monetary Policy and Financial Stability Committee broadly rose the rate in favor of the rate, which was double expected by economists.

The committee said in a statement that a “markedly higher” policy rate is needed to stabilize inflation around the Norges Bank’s target of close to 2%. Norwegian consumer price inflation came in at a 13-year high of 5.4% year-on-year in April, significantly above expectations.

However, the central bank said a tight labor market means employment will likely remain high even with higher interest rates.

“Prospects for a more prolonged period of high inflation suggest a faster rise in the policy rate than projected earlier,” Wolden Bache said.

“A faster rate rise now will reduce the risk of inflation remaining high and the need for a sharper tightening of monetary policy further out.”

The committee said it was concerned about inflation moving faster than expected against the backdrop of “li along spare capacity in the Norwegian economy,” with sustained global inflationary pressures and the weakened Norwegian krone currency.

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