Norges Bank's Monetary Policy and Financial Stability Committee unanimously decided to raise the key interest rate by 0,5 percentage point to 3,75%. According to the committee's current assessment of prospects and risks, it is most likely that the reference rate will be raised again in August.
The price increase is clearly above target. It seems that wage growth will be higher than last year. Activity is still high and the labor market tight, but the pressure on the Norwegian economy is easing.
The committee believes higher inflation is needed to bring it on target interest rate than previously reported. The price increase was clearly higher than estimated in the previous report. Interest rates abroad rose more than expected. Higher wage growth and a weaker krona than previously estimated will help reduce price increases in the future.
“If we don't raise interest rates, prices and wages may continue to rise rapidly and inflation will persist. Then lowering inflation again could be more expensive, says central bank governor Ida Wolden Bache.
The main interest rate will increase to 4,25% in the autumn
The further course of the interest rate will depend on economic development. If the koruna becomes weaker than we assumed or the pressure in the economy persists, a higher interest rate than we currently estimate may be necessary to bring inflation back to the target. At the same time, we have not yet seen the full effects of the interest rate hikes that we have been through. There is uncertainty as to how much households will reduce consumption in the future as a result of high price dynamics and interest rate increases. If inflation falls faster or we experience a stronger slowdown in the Norwegian economy, the interest rate may be lower than we currently assume.
The forecast for the main interest rate has been revised in up compared to the previous monetary policy report and indicates the main interest rate, which will increase to 4,25% in the fall.
Like us on Facebook and share our post with others. Thank you.
Source: Norges Bank
Also read: Traveling with an EU/EEA dog, cat or ferret
