By Victoria Klesty
OSLO (Reuters) – Norway’s central bank raised its benchmark interest rate by 25 basis points to 2.75% on Thursday, as expected by economists surveyed by Reuters, and said it will likely hike again as inflation remains above its targets.
Of the 24 analysts polled ahead of Thursday’s meeting, all but one had anticipated a quarter-point rise, while one had bet on an unchanged rate.
Graphic: Smaller hike delivered https://www.reuters.com/graphics/NORWAY-ECONOMY/RATES/znpnbbxdjpl/chart.png
“The policy rate will most likely be raised further in the first quarter of next year,” Norges Bank said in a statement.
The Norwegian currency, the crown, strengthened to 10.42 against the euro at 0921 GMT from 10.44 just before the rate announcement.
The U.S. Federal Reserve on Wednesday raised its key policy rate by 50 basis points as expected and said it will deliver more interest rate hikes next year even as the economy slips towards a possible recession.
Graphic: Race to hike rates https://www.reuters.com/graphics/NORWAY-ECONOMY/RATES/jnvwyyagkvw/chart.png
“The forecasts for the Norwegian economy are more uncertain than normal, but if the economy evolves as anticipated, the policy rate will be around 3% next year,” Norges Bank Governor Ida Wolden Bache said in a statement.
Norway’s core inflation has outpaced the central bank’s most recent forecasts, hitting 5.9% in October year-on-year and slowing somewhat to 5.7% in November while the bank had projected 5% for each of the two months.
Norges Bank, which targets core inflation of 2% over time, on Thursday raised its 2023 core inflation forecast to 5.2% from 4.8% seen in September.
“The new rate path was more hawkish than we expected and signals at least one more rate hike and 50% (probability) for a rate top at 3.25%,” Nordea Markets said in a note to clients.
The Norwegian mainland economy is now expected to grow by 3.6% in 2022, Norges Bank said, more than the 2.8% it predicted three months ago, and will likely contract by 0.1% next year compared to a previous forecast of a 0.3% drop.
(Editing by Terje Solsvik, Gwladys Fouche and Tomasz Janowski)
