Norway’s central bank raised its benchmark interest rate by a widely expected 50 basis points to 2.25 percent on Thursday but said future increases would be “more gradual,” weakening the country’s krone currency.
Norges Bank is likely to raise interest rates again by 25 basis points in November, although forecasts are extremely uncertain at the moment, said the bank’s CEO, Ida Wolden Bache.
“The interest rate forecast is in line with a rate of 0.25 percentage points at the November, December, and March meetings,” Bache told Reuters after Norges Bank’s announcement.
The latest increase comes as central banks around the world grapple with rising inflation. The US Federal Reserve raised its benchmark interest rates by 75 basis points for the third straight time on Wednesday, signaling more hikes. The Swiss National Bank raised interest rates by 75 basis points on Thursday, while the Bank of England
raised interest rates by 50 basis points.
Norges Bank was the first major central bank to start raising interest rates in September 2021 and now may be the first to signal that the peak is near, analysts said.
Norway’s benchmark interest rate, now at its highest since 2011, will now reach 3% next year and could start to decline in 2024, Norges Bank forecasts showed.
The base interest rate was zero a year ago and increases are now starting to strain the Norwegian economy, Norges Bank said. “This could indicate a more gradual approach to political taxation,” he added.
The Norwegian krone fell to 10.2 against the euro shortly after the 08:00 GMT announcement, just one minute earlier at 10:20. At 11 5 GMT, it was trading at 10.23 euros.
Of 30 economists polled by Reuters, 28 predicted a 50 basis point increase in Norges Bank, while one forecaster said a 25 basis point increase to 2.0 percent was most likely and another predicted a 75 basis point increase to 2.50. percentage.
“We may now see that Norges Bank is the first to become a bit ‘civilian,'” Danske Bank said. “Inventories are increasing, but the peak is approaching.”
Nordea Markets said the direction of interest rates was “on the exceptional side”. then what the market previously expected.
” Consumer price inflation continues to rise, but much of the economy will contract next year.
Norges Bank raised its 2023 core inflation forecast to .8 percent from 3.3 percent in June, well above 2.0.
This cuts the forecast for next year’s Norwegian
gross domestic product, the foreign economy of the oil and gas sector, at 0.3 percent from the previous growth of 1.1 percent.
It also follows Sweden’s unexpected full percentage increase to 1.75 percent on Tuesday.