Norway central bank raises rates by 50 bps, to hike again

Norway's central bank raised its benchmark interest rate by 50 basis points (bps) on Thursday and said more hikes were in the pipeline, probably including one in September, after inflation soared well above forecasts. Norges Bank's monetary policy committee raised the sight deposit rate to 1.75% from 1.25%, as expected by a majority of economists polled by Reuters but exceeding guidance it gave in June for a 25 bps hike.

Norway's central bank raised its benchmark interest rate by 50 basis points (bps) on Thursday and said more hikes were in the pipeline, probably including one in September, after inflation soared well above forecasts.

Norges Bank's monetary policy committee raised the sight deposit rate to 1.75% from 1.25%, as expected by a majority of economists polled by Reuters but exceeding guidance it gave in June for a 25 bps hike. "A markedly higher policy rate is needed to ease the pressures in the Norwegian economy and to bring inflation down towards the target," Norges Bank Governor Ida Wolden Bache said in a statement.

The bank said that, based on current assessments, "the policy rate will most likely be raised further in September". It did not say by how much, but added that there was a large degree of uncertainty surrounding the outlook for the economy.

"The rise in interest rates and high inflation may cool down the housing market and curb household consumption faster than currently envisaged," Norges Bank said. "There is also a risk of a sharper slowdown in global growth." Of 22 economists polled by Reuters, 14 had predicted a 50 bps rise on Thursday and eight forecast 25 bps.

Nordea Markets said the policy rate would likely rise to 3%. "We believe that Norges Bank will deliver another 50 bps rate hike in September, before resuming with 25 bps hikes from November onwards," Nordea economists Dane Cekov and Kjetil Olsen wrote in a note to clients.

The Norwegian crown rose to 9.85 against the euro at 0818 GMT from 9.88 just before the rate announcement. Food prices jumped in July, spurring Norway's core inflation rate to 4.5% year-on-year from 3.6% in June, official data showed last week, well above the central bank's forecast of 3.2%.

Norges Bank targets core inflation of 2.0% over time.

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