Norway Hikes Interest Rate Again, Flags Another Increase Next Year

Norway’s central bank raised its interest rate for the second time this year and signaled another increase in March in an effort to cool the country’s rebounding economy.

Norges Bank increased its benchmark rate by 25 basis points to 0.5 percent after its December monetary policy meeting, in line with economists’ expectations. The decision was poised to allow for a gradual rise in the policy rate in the coming years.

The central bank said that while new waves of COVID-19 cases and the outbreak of the Omicron variant have been dampening Norway’s economic activity, a rebound is likely to continue once infections and measures have eased soon.

“If economic developments evolve broadly in line with the projections, the policy rate will most likely be raised in March,” said central bank Governor Governor Oystein Olsen.

Concerns over rising wages and high prices of international commodities bolstering inflation was a factor to the rate increase, along with the krone being the second weakest among the G10 currencies this quarter.

The central bank noted, however, that “if there is a need for more stringent and protracted containment measures that pull down economic activity through spring next year, further rate hikes may be postponed.”

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