Norway central bank pushes up interest rate, hinting at another hike in December

Norway’s central bank has once again hiked its key interest rate, up to 4.25%, the thirteenth time in two years that it has done so.

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Norges Bank said in an announcement that the 0.25% increase is necessary amid soaring costs — inflation reached 4.8% in August — and that interest rates might need to go up once again to bring inflation down to Norway’s 2% target.

“Whether additional tightening will be needed depends on economic developments,” said Norges Bank governor Ida Wolden Bache. “There will likely be one additional policy rate hike, most probably in December.”

The bank said the policy rate is likely to rise to 4.5% and stay there throughout 2024, suggesting that no cuts are in the cards next year.

“There will likely be a need to maintain a tight stance for some time ahead”, Bache said. 

The bank said that while growth in Norway’s economy has slowed, the labour market “remains tight”. Despite ever-increasing costs for businesses and labour, Norway’s monetary policy is having a “tightening effect on the economy”.

Norges Bank said it does not want to raise interest rates more than necessary to tackle inflation.

The announcement comes amid a flood of activity in central banks across Europe and beyond, as they decide whether to increase and maintain current interest rates to stem rising costs.

The European Central Bank (ECB), Sweden’s Riksbank and Denmark’s Nationalbank have declared hikes over the past week, with the Bank of England (BoE) due to announce whether or not it will follow suit later on Thursday. 

The Swiss National Bank froze its policy rate at 1.75% and across the Atlantic, the US Federal Reserve said yesterday that it would keep interest rates at 5.25%-5.5%.

Like Norway, the ECB, BoE and Riksbank have set their inflation target at 2%.

As of 22 September, Norway’s policy rate will stand at 4.25 %, the overnight lending rate at 5.25%, and the reserve rate at 3.25%.