The Norwegian Central Bank, Norges Bank, on Thursday increased its principal deposit rate by 25 basis points to 4.25%, marking the highest level since 2008. This move adds pressure to Norway’s economy, which is currently experiencing a slowdown. The bank also hinted at a potential further increase in December.
In addition to the rate hike, Norges Bank slightly revised its expectation for the key rate, suggesting it could hover around 4.5% through 2024. The bank’s Governor, Ida Wolden Bache, indicated the need to maintain a stringent monetary stance for some time, aligning Norway’s monetary policy with other developed economies.
This potential additional increase followed by a pause reflects a similar approach adopted by the U.S. Federal Reserve. Jerome Powell, Chair of the U.S. Federal Reserve, previously stated that the U.S. central bank would “proceed carefully”, implying that rates may remain high for an extended period with a possible further hike on the horizon.
Norway’s economy, rich in fossil fuels, is decelerating after resisting the impact of higher prices and escalating credit costs for most of the year. However, an appreciation in the krone from its formerly low level over the past few months has eased policymakers’ concerns about imported inflation as underlying price growth slowed more than predicted last month.
Norges Bank was the first among the G-10 group of major currency jurisdictions to initiate rate increases in September 2021. The krone has regained some of its earlier losses this quarter due to rising oil prices and comparatively slower rate hikes by the European Central Bank and the Federal Reserve.
Earlier on Thursday, Sweden’s Riksbank also hiked rates by a similar magnitude but stopped short of assuring another increase. In contrast, the Swiss National Bank unexpectedly decided to keep borrowing costs steady. Meanwhile, the Bank of England may raise rates again, although recent data showing a drop in inflation to an 18-month low has left such an outcome uncertain.
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