Norway sticks to December rate hike plan as economy rebounds

3 minute read

A general view of the Norwegian central bank, where Norway's sovereign wealth fund is situated, in Oslo, Norway, March 6, 2018. REUTERS/Gwladys Fouche

Register now for FREE unlimited access to Reuters.com
  • Norges Bank holds base rate at 0.25%
  • Continues to signal December hike
  • Says economy recovering as expected
  • Stronger currency could temper inflation
  • Says uncertainty warrants gradual rise

OSLO, Nov 4 (Reuters) - Norway's central bank said on Thursday it plans to raise its key policy interest rate next month, continuing a campaign of monetary tightening that started in September.

Norges Bank's monetary policy committee kept the rate on hold at 0.25% for now, as unanimously expected in a Reuters poll of economists.

"Based on the committee's current assessment of the outlook and balance of risks, the policy rate will most likely be raised in December," Governor Oeystein Olsen said in a statement.

Register now for FREE unlimited access to Reuters.com

The Norwegian economy has rebounded strongly from the pandemic, aided by an end to lockdowns and a sharp rise in the price of oil and gas, the country's biggest export.

Norges Bank's monetary policy committee in September raised rates for the first time in two years and said it planned to hike by another 25 basis points (bps) by year-end, followed by three more increases in 2022.

The central bank is now all but certain to raise the policy rate by 25 bps in December, economists at Capital Economics said in a note to clients.

"We expect it to hike once per quarter next year which would take the rate back to the pre-pandemic level of 1.50% by the end of 2022," they added.

But Norges Bank also said uncertainty surrounding the effects of higher interest rates warrants a "gradual rise".

"This is likely meant to address expectations which have been popping up to a certain extent in the market lately, that we could see a rate change of for example 50 basis points, and they reject that here really," DNB Markets Chief Economist Kjersti Haugland told Reuters.

MARKED UPSWING

Norges Bank is scheduled to provide updated growth forecasts along with its December rate decision. In September, it raised its prediction for GDP growth for 2022 to 4.5% from 4.1% seen previously.

"The reopening of society has led to a marked upswing in the Norwegian economy, and activity is higher than its pre-pandemic level. The economic upturn is continuing broadly as expected," Norges Bank said on Thursday.

"Higher economic activity and rising wage growth will likely lift underlying inflation, but the recent (crown currency) appreciation could curb the rise in prices," it added.

While Norway was among the first developed economies to start reversing its ultra-loose pandemic policies, several others have since followed suit. read more

On Wednesday the U.S. Federal Reserve said it will begin trimming its bond purchases, but neither the Fed nor the European Central Bank are expected to hike rates any time soon. read more

The crown weakened slightly to 9.87 against the euro at 0907 GMT from 9.85 just before Norges Bank's announcement. In the last three months, the crown has strengthened by about 7% against the euro.

Register now for FREE unlimited access to Reuters.com
Reporting by Terje Solsvik and Victoria Klesty, Editing by Gwladys Fouche, Hugh Lawson and Kim Coghill

Our Standards: The Thomson Reuters Trust Principles.