Norway central bank raises interest rate, may hike again

Norway's central bank raised its policy interest rate by 25 basis points to 4.50% on Thursday as expected by a narrow ‌majority of analysts in a Reuters poll, and said it may hike again to contain inflation. "It will likely be necessary to keep the policy rate elevated for a time, and the committee is prepared to raise the policy rate further if needed to ‌bring inflation down to the 2% target within a reasonable time horizon," Norges Bank Governor Ida Wolden Bache said in ‌a statement.

The Norwegian crown strengthened to 10.76 against the euro at 0806 GMT, from 10.79 just before the announcement. Norway's central bank raised rates by 25 basis points in May, moving sooner than most analysts had expected, but said in August that the future path of monetary policy would "depend on economic ⁠developments", casting ​some doubt on the way ⁠forward.

"The committee does not want to restrict the economy more than needed, but judges that a somewhat tighter monetary policy stance is needed to return ⁠inflation to target within a reasonable time horizon," Norges Bank said on Thursday. Among the 28 economists in the September 17-21 poll, 16 expected ​Norges Bank to announce a 25 basis-point hike to 4.50%on Thursday, while 12 predicted no change at this time.

A ⁠further seven economists predicted that a hike to 4.50% would come in the fourth quarter, and the vast majority of the economists polled predicted 4.50% to ⁠be ​the peak borrowing cost. The Nordic country's core inflation rose to 3.0% year-on-year in August, below Norges Bank's official forecast of 3.3% for the 12-month period but still remaining above the central bank's target.

"Over the summer, underlying inflation moderated and was lower ⁠than expected. But the inflation outlook somewhat further ahead does not appear to have changed materially," Bache said in the statement. With ⁠the new policy rate ⁠path, inflation is projected to slow from next year and move down to 2% in 2029, the central bank said.

"The economy is expected to cool somewhat further, and registered unemployment is projected ‌to edge up ‌to slightly above pre-pandemic levels," it added.