Norges Bank Signals December Hike On High Inflation

(RTTNews) - Norway's central bank raised its key interest rate by 25 basis points on Thursday, as signaled during the previous meeting, and sounded more hawkish than expected with Governor Ida Wolden Bache saying that there would likely be another hike in December as inflation remains significantly above the bank's 2 percent target.

The Monetary Policy and Financial Stability Committee raised the policy rate from 4.0 to 4.25 percent. "Whether additional tightening will be needed depends on economic developments," Bache said.

"There will likely be one additional policy rate hike, most probably in December".

The bank revised up it interest rate path and now sees the policy rate to be around 4.5 percent through 2024.

As persistent high inflation imposes substantial costs, policymakers assessed that a somewhat higher interest rate was needed to rein in inflation, the bank said. "There will likely be a need to maintain a tight stance for some time ahead", Bache said.

Further, the bank expects labor costs to rise more than projected earlier and to contribute to keeping inflation higher in the coming months.

The longer inflation remains elevated, the greater the risk of it becoming entrenched and then it would be more costly to bring it lower at a later stage, the bank cautioned. On the other hand, the policy rate has been raised significantly over a short period of time, and monetary policy is now having a tightening effect on the economy, the central bank said.

"The Committee does not want to raise the policy rate more than is necessary to tackle the high level of inflation," Norges Bank added.

Norges Bank's new guidance is more hawkish than expected, Capital Economics economist Jack-Allen Reynolds said. A hike in December now seems the most likely outcome and the bank's new projections also suggests that policymakers see only a slim chance of rates starting to come back down next year, the economist said. "Norges Bank will probably wait a bit longer to start reducing rates, but we think that inflation will fall more rapidly than the central bank expects next year," Allen-Reynolds said.

"So once it starts, we think that it will also cut rates more quickly than policymakers currently anticipate."

Elsewhere in the region, Sweden's Riksbank raised its key policy rate by 25 basis points to 4.00 percent and signaled another hike, possibly another quarter-point lift in November.