Norges Bank Signals Rate Hike In March

The Norwegian Central Bank decided to keep its benchmark interest rate unchanged at its January meeting, in line with market expectations, and policymakers hinted that further rate hikes would be needed to bring inflation down to the target.

The Monetary Policy and Financial Stability Committee, headed by Governor Ida Bache, unanimously decided to hold the policy rate at 2.75 percent, Norges Bank said in a statement on Thursday.

The previous change in the rate was a 0.25 percent hike in December.

“The policy rate has been raised considerably over a short period of time, and monetary policy has started to have a tightening effect on the economy,” Norges Bank said.

“This may suggest a more gradual approach to policy rate setting.”

The policy rate will most likely be raised in March, Governor Bache said.

Norges Bank aims to keep inflation low and stable. Recent official data showed that consumer price inflation eased to 5.9 percent in December from 6.5 percent in November.

“The operational target is inflation of close to 2 percent over time,” the bank said.

Activity in the Norwegian economy is high, and the labor market is tight, while high inflation and higher interest rates are weakening household purchasing power, the bank said. Many firms expect a fall in activity ahead.

The outlook for the Norwegian economy is more uncertain than normal, the central bank observed.

Read more: Norway Industrial Confidence Improves Slightly To -3.9

Mainland GDP in November was higher than projected in the December Report and the registered unemployment remained at 1.6 percent in December.

Continued pressures in the Norwegian economy may contribute to keeping inflation elevated. These developments may force Norges Bank to raise the policy rate further to 3.00 percent at the next meeting in March.

“We suspect that will be the final hike in this tightening cycle, and that the Bank will leave the policy rate at 3 percent until next year,” Capital Economics economist Jack Allen-Reynolds said.

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