Central bank raises rates, again
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Loading... - Narum Cuyler
- 15 May 2023
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Norges Bank's Monetary Policy Committee has set a new policy rate of 3.25 percent, which will guide all other rates in Norway. Despite the short-lived boost to 3 percent in March, inflation remains high at around 6.5 percent, and the value of the Norwegian krone has declined. Norges Bank Governor Ida Wolden Bache emphasized the central bank's most crucial task is to secure low and stable inflation, with a goal of just 2 percent inflation rate, making the current rate too high.
Bache stated at a press conference that the prices of goods and services have risen sharply, with high energy prices playing a significant role in the high price growth. She added that price stability is critical for maintaining a well-functioning economy, and if the price of money is higher, other prices should decline. Although the Norwegian economy remains robust, the value of its currency has weakened, raising concerns among economists and analysts. Raising interest rates can address these concerns and also strengthen the krone. However, the rate hike did not seem to boost the krone by as much as expected.
The bank's monetary policy committee believes that rates will increase again in June, citing the need for higher rates to curb inflation. If the krone remains weaker than expected, or pressures in the economy persist, a higher policy rate may be necessary. Economist Roger Bjørnstad at Norway's largest trade union confederation LO was disappointed with the decision, as higher interest rates can dampen the effects of the recent pay raises of more than 5 percent for its members. However, higher rates could benefit those with savings accounts, provided banks pass them on to their customers.
While key interest rates remain lower in Norway than elsewhere, Thursday's widely anticipated rate hike followed a rise by the US central bank to an even higher level of around 5 percent. The European Central Bank also raised its rate to 3.25 percent on Thursday. Kjersti Haugland, chief economist at Norway's largest commercial bank DNB, was not surprised by the rate hike, calling it a clear indication that Norges Bank would not react to an ongoing weak krone without raising rates.
