Norway central bank raises rates, worried by inflation, currency

OSLO –

Norway’s central financial institution raised its benchmark rate of interest by 25 foundation factors (bps) on Thursday to three.25%, as anticipated, to curb inflation, and added it was more likely to hike once more in June, with extra tightening to observe if the forex stayed weak.

All 26 economists polled within the interval from April 21 to 26 had anticipated a hike of 25 foundation factors, and all however one believed the speed would rise to three.50% in June.

Rates might proceed to rise to counter the results of a weak Norwegian forex, the central financial institution mentioned.

“If the krone remains weaker than projected or pressures in the economy persist, a higher policy rate than envisaged earlier may be needed,” Norges Bank Governor Ida Wolden Bache mentioned in a press release.

The crown initially weakened after the news at 0800 GMT however quickly recovered to commerce at 11.81 towards the euro EURNOK=, an increase of 0.6% on the day.

“We expect rates to peak at 3.75% but a high of 4% is becoming more and more likely,” Nordea Markets mentioned in a notice to purchasers.

The Norwegian forex has been by far the worst-performing amongst main currencies this 12 months, reflecting widening curiosity differentials and elevated threat aversion, making imports costlier and feeding inflation.

The I-44 import-weighted trade fee index presently trades at 124.8, some 6% weaker than Norges Bank’s most up-to-date full-year 2023 projection made in March.

Norway’s core inflation, which excludes vitality prices, stood at 6.2% in March, and has remained above the financial institution’s 2% goal since February final 12 months.

Norges Bank mentioned a better coverage fee was wanted to dampen the rise in shopper costs.

“Growth in the Norwegian economy has slowed, but activity remains high. The labour market is tight, and wage growth is set to be higher in 2023 than last year,” it mentioned. “The future policy rate path will depend on economic developments.”

Reporting by Victoria Klesty and Gwladys Fouche; Editing by Terje Solsvik, Clarence Fernandez and Christina Fincher