Norway Central Bank Hikes Rate Unexpectedly

(RTTNews) - Norway's central bank raised its benchmark rate unexpectedly by a quarter-point on Thursday as the war in the Middle East pushed up inflation and raised substantial uncertainty about the economic outlook.

The Monetary Policy and Financial Stability Committee of Norges Bank decided to raise the policy rate to 4.25 percent from 4.0 percent.

The interest rate was raised for the first time since December 2023. Markets anticipated the bank to keep the rate unchanged.

The committee judged that inflation is too high, and there are prospects that inflation will remain elevated ahead. Policymakers concluded that a higher policy rate is needed to return inflation to target within a reasonable time horizon.

The committee viewed that unexpectedly high inflation and higher wage growth prospects than previously assumed implied that inflation would become higher than previously envisaged. The rise in oil and prices due to the Middle East war could also push up inflation further, they noted.

Governor Ida Wolden Bache said, although the monetary policy outlook does not appear to have changed materially since March, the war in the Middle East is still causing substantial uncertainty about the economic outlook.

ING economist Francesco Pesole said a hold is more likely in June, but risks remain on the hawkish side, with guidance still pointing to another potential rate increase by year-end.