Yahoo Finance Norway hikes rates by 25 basis points in surprise decision
(Reuters) — Norway's central bank raised its benchmark interest rate by 25 basis points to 4.50% in a surprise decision on Thursday as it sought to combat persistent inflation, and said it would likely stay put at that level until late 2024.
Of 27 economists polled in advance by Reuters, 15 had expected rates to stay on hold on Thursday while a minority of 12 had forecast a hike to 4.50%.
Norges Bank was ready to hike again if necessary but could also cut rates if inflation were to fall more quickly than expected, Governor Ida Wolden Bache told a press conference.
"If the economy evolves as currently envisaged, there will not be a need for additional rate hikes," Bache said.
"The forecast indicates that the policy rate will continue to lie around 4.5% until autumn 2024 before gradually moving down," she added.
The Norwegian crown strengthened by about 1.5% to 11.51 against the euro, from 11.67 just before the announcement.
The central bank had said last month it would likely raise the cost of borrowing in December, with the caveat that a decline in core inflation could change its monetary policymakers' minds.
"We see that the economy is cooling down, but inflation is still too high. An increase in the policy rate now reduces the risk of inflation remaining high for a long period of time," Bache said in a statement accompanying the decision.
Having peaked at 7.0% in June, Norway's annual core inflation, which excludes energy costs, stood at 5.8% in November, below the central bank's forecast of 6.1% but still far above the 2.0% target.
The central bank raised its forecast for 2024 core inflation to 4.8% from a forecast of 4.7% made in September. The forecast for 2025 was raised to 3.5% from 3.4%.
The Norwegian crown has been consistently weaker than predicted by the central bank, potentially stoking inflation. On a trade-weighted basis, the currency had weakened by around 9% this year until Wednesday's market close.
The decision to hike was "quite hawkish", Nordea analysts said in a note to clients, having anticipated an unchanged rate.
"The new interest rate path is slightly lower further out and shows a certain probability of an interest rate cut by the end of 2024," Nordea said. "Norges Bank has placed more emphasis on the weak crown than soft macro data."
Norges Bank's next policy decision is due on Jan. 25.
The Federal Reserve left U.S. interest rates unchanged on Wednesday and said the historic tightening of monetary policy is likely over, with a discussion of cuts in borrowing costs coming "into view."
The Swiss National Bank on Thursday held its policy interest rate steady at 1.75%.
The European Central Bank and Bank of England are also expected to keep rates on hold later in the day. (Reporting by Victoria Klesty, Editing by Terje Solsvik, Shri Navaratnam and Catherine Evans)
