The Monetary Policy and Financial Stability Committee Norges Bank unanimously decided to raise the main interest rate by 0,5 percentage point to 1,75 percent. As the committee is currently assessing the outlook and the risk picture, the interest rate will most likely be raised in September.
The price increase was significantly higher than forecast and clearly above the 2% target. The Norwegian economy is highly active and has little spare capacity. Unemployment has decreased slightly more than expected and is at a very low level.
– The need is clearly higher interest rateto ease the pressure on the Norwegian economy and bring inflation back to the target, says the president of the central bank, Ida Wolden Bache.
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The price increases in recent months have been broad-based and may mean that price increases will remain high for a longer period of time. This indicates faster increase in interest rates than forecast in June. A faster increase in interest rates now will reduce the risk of inflation remaining high and the need for a stronger tightening of monetary policy in the future.
There is also a risk of a slowdown in growth internationally
The Committee was concerned that there was great uncertainty about future developments. There is a risk that the low spare capacity in the Norwegian economy and the sustained international price pressure will lead to further acceleration in price growth. On the other hand, an increase in interest rates and a high pace of price growth may cause a faster than we expect slowdown in the housing market and household consumption. There is also a risk of a stronger slowdown in growth in the international arena.
Source: Norges Bank
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