The Norway central bank announced its decision to increase the primary interest rate by twenty-five basis points in response to elevated inflation on Thursday. This move by Norges Bank takes the rate to 4%, a threshold not seen since 2008. The central bank pointed out that despite a slight decrease, inflation, which soared to 5.4% in July, continues to persist significantly above the desired 2% target. The central bank emphasized the necessity for a moderately higher policy rate to realign inflation with the target.
Norway central bank looking to bring down inflation
Bank Governor Ida Wolden Bache emphasized that the trajectory of future policy rates would be contingent upon economic developments in Norway. She also mentioned a substantial likelihood of another rate increase in the upcoming month, stating that if the economy continues along its current projected path, they can expect a further policy rate hike in September.
The central bank acknowledged the persistent vigor in the Norwegian economy, which stands independent from the European Union. This phenomenon aligns with the broader trend observed globally as central banks endeavor to manage surges in consumer prices catalyzed by the post-COVID-19 economic resurgence and the aftermath of Russia’s conflict in Ukraine, which escalated the costs of essential commodities like food and energy.
After experiencing a period of appreciation against the euro in the initial stages of summer, the Norwegian currency has undergone a reversal in its fortunes after unveiling less severe inflation figures for July. In contrast, the European Central Bank (ECB) elevated its primary policy rate to 3.75% in the previous month. However, a few economists anticipate that the ECB will momentarily halt its progression of rate increases during its scheduled meeting in September.
