(Bloomberg) — Norway’s central bank raised borrowing costs to the highest level since the 2008 financial crisis and signaled it still plans another quarter-point hike in the current tightening cycle.
(Bloomberg) — Norway’s central bank raised borrowing costs to the highest level since the 2008 financial crisis and signaled it still plans another quarter-point hike in the current tightening cycle.
Norges Bank lifted its key deposit rate on Thursday by 25 basis points to 4%, the 12th increase since September 2021, as forecast by all analysts in a Bloomberg survey. It said the rate “will most likely be raised further in September,” with Governor Ida Wolden Bache keeping the door open for further hikes, depending on incoming data.
The central bank is likely to be nearing the end of its current bout of tightening — the longest among major currency holders — after favorable inflation data and a rebound in the weak krone relieved pressure on policymakers in the energy-rich Nordic nation. Still, the question of when hikes end and at what level, remains open.
Read More: Norway Hikes Beyond September to Depend on Data, Governor Says
The central bank gave no updates to any of its estimates on Thursday, in line with its practice for so-called interim meetings. It has previously forecast a peak in borrowing costs at 4.25% later this year.
“Whether there will be a hike in September, whether there will be further hikes, will depend on incoming information,” Wolden Bache said in an interview in Arendal, southern Norway, addressing comments from economists about the lack of guidance beyond September.
Going into the meeting, the consensus had been converging on a high of 4.25% to be reached this quarter, but “markets are leaning toward a peak rate at 4.5% in December,” Nordea Bank Abp’s strategist Dane Cekov said in a note to clients after the rate decision. He expects a final 25 basis-point hike next month.
Kjetil Martinsen, Swedbank AB’s chief economist in Norway, said the scant outlook suggests the central bank “remains uncertain about the economic developments ahead – growth and inflation have indeed surprised to the upside over the past year – and the policy rate peak has been pushed higher and further out in time several times,” in a note to clients published before Wolden Bache’s interview.
While Norway’s consumer prices have grown faster than in the euro area and its Scandinavian peers, according to harmonized figures from the Eurostat, the underlying inflation rate declined as forecast from a record high last month.
“Consumer price inflation has edged down but remains high and markedly above the target,” the rate-setting committee said. “Underlying inflation has remained elevated. The Committee assesses that a somewhat higher policy rate is needed to bring inflation back to target.”
The Norwegian currency, the second-best performer in the G-10 space so far this quarter, had a see-saw trading session following the news, strengthening 0.3% to 11.5066 versus the euro at 1:09 p.m in Oslo.
The strength of the export-related industries in the Nordic nation — partly helped by the weak krone — has so far largely outweighed the fallout on retail and business investment from a higher inflation rate and credit costs.
New data on the economy is due next week, when Statistics Norway publishes second-quarter gross domestic product figures. According to earlier forecasts, the central bank sees the mainland economy expanding 1.2% this year and approaching a standstill in 2024.
–With assistance from Joel Rinneby, Stephen Treloar, Veronica Ek and Gina Turner.
(Updates with governor’s comments, krone reaction.)
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