By Nerijus Adomaitis and Terje Solsvik
OSLO, Sept 24 (Reuters) – 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.
Norway’s core consumer prices rose by 3% year-on-year in August and have exceeded the central bank’s target of around 2% each month since early 2022.
“We believe it will be necessary to maintain elevated interest rates for a time to come, and we are prepared to raise them again if the inflation outlook warrants it,” Norges Bank Governor Ida Wolden Bache told a press conference.
The Norwegian crown strengthened to 10.75 against the euro by 0932 GMT, from 10.79 just before the announcement.
TIGHTER POLICY STANCE NEEDED
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 Reuters 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.
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.
But Norges Bank’s new rate path now suggests a 40% probability of another hike in the next six months, brokerage Nordea Markets said in a note to clients.
“Rates will stay around current levels for quite some time and when rates eventually go down, they will not go down by much,” Nordea said.
INFLATION TO HIT TARGET IN 2029
Still, the August inflation of 3% was below Norges Bank’s official forecast of 3.3%.
“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.
Growth in mainland GDP, which strips out the country’s oil and gas production, was forecast at 0.9% for 2026, in line with a June projection and down from a growth rate of 1.7% in 2025.
The mainland economy is projected to expand by 1% in each of the two coming years, while core inflation will ease to 2.7% next year, 2.4% in 2028 and 2.1% in 2029, Norges Bank added.
“The economy is expected to cool somewhat further, and registered unemployment is projected to edge up to slightly above pre-pandemic levels,” it said.
(Reporting by Terje Solsvik and Nerijus Adomaitis; Editing by Louise Rasmussen, Gwladys Fouche and Emelia Sithole-Matarise)
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