Economy2 minutes ago (Sep 23, 2021 04:31AM ET)
© Reuters. FILE PHOTO: A general view of the Norwegian central bank, where Norway’s sovereign wealth fund is situated, in Oslo, Norway, March 6, 2018. REUTERS/Gwladys Fouche/File Photo
OSLO (Reuters) – Norway’s central bank raised its benchmark interest rate on Thursday as expected, and said more hikes will follow as it joins a short but growing list of nations moving away from emergency-level borrowing costs.
Norges Bank’s monetary policy committee raised the sight deposit rate to 0.25% from a record low of zero, as forecast unanimously (https://www.reuters.com/article/norway-economy-rates-idUSL8N2QG31X) in a Reuters poll of analysts and in line with the central bank’s own plan (https://www.reuters.com/article/norway-economy-rates-idUSL8N2PQ1WQ).
“Based on the committee’s current assessment of the outlook and balance of risks, the policy rate will most likely be raised further in December,” Norges Bank Governor Oeystein Olsen said in a statement.
The monetary policy committee said its forecast for four more hikes by the end of 2022, to a rate of 1.25%, had become even more likely.
Norway’s currency, the crown, strengthened to 10.0786 against the euro at 0808 GMT from 10.1031 just before the announcement.
The central bank cut rates three times in 2020 to combat the impact of the COVID-19 pandemic, contributing to a boom in housing prices as borrowers took advantage of cheap credit.
The government in recent months removed most lockdown restrictions however and unemployment has fallen more than expected, while the central bank’s own business survey showed a rise in activity https://www.reuters.com/world/europe/norway-business-activity-rises-bottlenecks-emerge-2021-09-14 and pointed to growing capacity constraints.
Norges Bank’s announcement represented “yet another hawkish tilt” on monetary policy, Nordea Markets said in a note to clients.
Many of the world’s central banks are now laying the groundwork for a transition to life with less stimulus, and some developed economies have already raised rates, such as the Czech Republic (https://www.reuters.com/article/czech-economy-rates-idUSL8N2PC69R), South Korea (https://www.reuters.com/business/finance/skorea-seen-delivering-its-first-pandemic-era-rate-hike-2021-08-25) and Iceland.
In the United States, the Federal Reserve on Wednesday said it will likely begin reducing its monthly bond purchases as soon as November (https://www.reuters.com/business/finance/fed-likely-open-bond-buying-taper-door-hedge-outlook-2021-09-22) and signalled interest rate increases may follow more quickly than expected.
Having contracted by 2.5% in 2020, the Norwegian economy is now expected to grow 3.9% in 2021, the bank said, more than the 3.8% it predicted three months ago, and will likely see expand 4.5% next year, stronger than its previous forecast of 4.1%.
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