Norway sticks to December rate hike plan as economy rebounds
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Norway’s central bank said on Thursday it plans to hike its key rate next month, continuing a monetary tightening campaign that began in September.
Norges Bank’s monetary policy committee has kept the rate at 0.25% for now, as unanimously predicted in a Reuters poll of economists.
“Based on the Committee’s current assessment of the outlook and the balance of risks, the key rate will most likely be raised in December,” Governor Oeystein Olsen said in a statement.
The Norwegian economy has rebounded strongly from the pandemic, helped by the end of lockdowns and a sharp rise in the prices of oil and gas, the country’s largest export.
In September, the Norges Bank’s monetary policy committee hiked rates for the first time in two years and said it planned to hike them an additional 25 basis points (bps) by the end of the year. year, followed by three more increases in 2022.
The central bank is now almost certain to raise the policy rate by 25 basis points in December, economists at Capital Economics said in a note to clients.
“We expect it to increase quarterly next year, which would bring the rate back to the pre-pandemic level of 1.50% by the end of 2022,” they added.
But Norges Bank also said the uncertainty surrounding the effects of rising interest rates warranted a “gradual increase”.
“This is probably intended to meet the expectations that have arisen to some extent in the market lately, that we could see a rate change of 50 basis points for example, and they are really rejecting it here,” said Kjersti Haugland, chief economist at DNB Markets. told Reuters.
MARKED RETURN
Norges Bank is expected to provide updated growth forecasts with its December rate decision. In September, he raised his GDP growth forecast for 2022 to 4.5% from 4.1% previously.
“The reopening of the company has resulted in a sharp recovery in the Norwegian economy and activity is above its pre-pandemic level. The economic recovery is generally continuing as expected,” Norges Bank said on Thursday.
“Higher economic activity and wage growth are likely to increase core inflation, but the recent appreciation (of the koruna currency) could dampen price increases,” he added.
While Norway was among the first developed economies to start reversing its ultra-flexible pandemic policies, several others have since followed suit. Read more
On Wednesday, the US Federal Reserve said it would start cutting its bond purchases, but neither the Fed nor the European Central Bank are expected to raise rates anytime soon. Read more
The krone weakened slightly to 9.87 against the euro at 0907 GMT from 9.85 just before the Norges Bank announcement. Over the past three months, the krone has strengthened by around 7% against the euro.
Reporting by Terje Solsvik and Victoria Klesty, editing by Gwladys Fouché, Hugh Lawson and Kim Coghill
Our Standards: The Thomson Reuters Trust Principles.
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