The facade of the Norwegian Central Bank, also known as Norges Bank, in Oslo, Norway.
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Norway’s central bank raised its key policy rate by 50 basis points (bps) to 3.75% on Thursday to curb inflation, more than most economists polled by Reuters had expected, and said
The target is to raise rates again in August.
Of 32 economists polled ahead of schedule, 24 forecast a 25 basis point increase on Thursday, while eight were betting on a 50 basis point increase.
The central bank forecasts that the policy rate will rise to 4.25% in the autumn.
“If we do not raise the policy rate, prices and wages are likely to continue to rise rapidly and inflation will become entrenched,” Norges Bank Governor Ida Wolden Bache said in a statement.
The Norwegian krone rose to 11.55 to the euro by 0807 GMT from 11.69 before the announcement.
The outlook brightened for many Norwegian companies after Norges Bank said in May that another rate hike in June was “very likely” and official data showed consumer prices rose more than expected.
“Today’s hawkish decision shows that Norges Bank is serious and concerned about inflation becoming entrenched,” analysts at Nordea said in a note to clients.
“Given that inflation was significantly higher than expected, the decision was justified,” Nordea added.
The hike raised the policy rate to the highest level since the onset of the global financial crisis in 2008.
While Norway became one of the first Western countries to raise interest rates post-pandemic in 2021, it has been slower to tighten policy than its neighbor the euro zone, taking a hit on the currency.
The European Central Bank raised its key policy rate last week and is expected to hike again, while the Federal Reserve left borrowing costs unchanged but signaled a return to tightening.