Norway’s central bank raises key interest rate to 4.25 percent

2023-09-21 10:45:38

Norway’s central bank, Norges Bank, raised its key policy rate by 0.25 percentage points to 4.25 percent on Thursday.

It also announced that another key interest rate rise was expected in December. In the lead-up to Thursday’s announcement, many analysts believed the key rate would peak at 4.25 percent.

“Whether it will be necessary to raise the interest rate further will depend on the economic development. We will probably raise the policy rate one more time, most likely in December,” Ida Wolden Bache, governor of Norges Bank, said.

The bank said that consistently high inflation was the reason for the higher interest rates. The bank sees interest rate increases as a tonic for inflation. For this reason, the bank is unlikely to announce a rate cut in 2024.

“It is likely that there will be a need to keep the interest rate up for quite some time to come,” Bache said.

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Norges Bank expects the average mortgage interest rate to rise to 5.7 percent, before beginning to decline in 2025.

It also said that rising wages would likely increase inflation in the short term.

“It will help to keep price growth up going forward. The longer price inflation stays up, the greater the danger that it will bite. It may then be more expensive to bring the price increase down again later. On the other hand, interest rates have been raised a lot quickly, and monetary policy is now having a tightening effect on the economy. The committee does not want to raise the interest rate more than is necessary to overcome the high price increase,” the bank wrote in an assessment.