Norway central bank keeps rates on hold, flags plan to hike

Norway's central bank kept its policy interest rate at 4.25%, but hinted at future rate hikes to combat high inflation, in line with market expectations.

Norway's central bank kept its policy interest rate on hold at 4.25% on Thursday but said inflation ‌is too high and that borrowing costs will likely be raised later this year, in line with expectations in a Reuters poll of analysts.

The Norwegian crown currency weakened to 11.08 against the euro by 0844 GMT, from 11.04 just before the announcement. "It will likely be necessary to ‌raise the policy rate further at one of the forthcoming monetary policy meetings," the central bank said in a statement.

The central bank ‌policy committee last month raised rates by 25 basis points to 4.25%, moving sooner than most analysts had expected to quell inflation driven by strong wage growth and high energy costs. Annual core inflation rose unexpectedly in May to 3.4% from 3.2% in April, official data showed earlier this month, moving further away from the central ⁠bank's ​long-term target of 2%.

Norges Bank's policy ⁠committee cut rates twice last year and in December signalled further cuts in 2026, but it has since changed course as inflation has held above 3%. "We expect ⁠that a somewhat tighter monetary policy stance will be needed to bring inflation down to target within a reasonable time horizon," Governor Ida Wolden Bache ​said in a statement on Thursday.

A hike was thus expected "at one of the forthcoming monetary policy meetings", she said. The next policy ⁠meeting is held in August, followed by one in September.

While all 26 economists in the Reuters poll expected no change in rates on Thursday, a majority predicted ⁠one ​more 25 basis-point hike later this year to 4.50%, most likely by the end of the third quarter. Also on Thursday, the Swiss National Bank left its benchmark interest rate unchanged, saying that price pressures over the medium term had barely changed despite an uptick ⁠in inflation stoked by higher fuel costs arising from the Iran war.

The European Central Bank last week raised interest rates for the first ⁠time in nearly three years ⁠to curb inflation, while Sweden's Riksbank on Wednesday said the chance of a hike later this year has increased. The Federal Reserve, meanwhile, kept rates on hold on Wednesday, while analysts expect the Bank of ‌England to keep rates ‌unchanged later on Thursday.