Norway’s central bank, also known as Norges Bank, in Oslo, Norway.
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Norway’s central bank on Thursday announced a 50 basis point hike in its benchmark interest rate, the country’s biggest single increase since 2002.
The move moves the policy rate from 0.75% to 1.25%, and Norges Bank governor Ida Volden Bache said in a statement that it would be raised to 1.5% in August.
The Bank’s Monetary Policy and Financial Stability Committee voted unanimously in favor of the rate hike, which was twice the level widely expected by economists.
The committee said in a statement that a “significantly higher” policy rate is needed to stabilize inflation around Norges Bank’s target of 2%. Norwegian consumer price inflation fell to a 13-year high of 5.4% in April on a year-on-year basis, well above expectations.
However, the central bank said a tight labor market meant employment would remain high even with higher interest rates.
“Prospects for a more prolonged period of high inflation suggest a faster increase in the policy rate than previously thought,” said Volden Bache.
“A faster rate hike now will reduce the risk of inflation remaining high and require further tightening of monetary policy.”
The committee said it was concerned about the backdrop of “little excess capacity in the Norwegian economy”, as well as continued global inflationary pressures and a weaker Norwegian krone currency with inflation rising faster than expected.