Norway’s central bank decided to raise its policy rate by 25 basis points to curb inflation amid the tight labor market conditions and hinted at another rate hike in May and beyond.
Norges Bank’s Monetary Policy and Financial Stability Committee on Thursday unanimously decided to lift the policy rate to 3.00 percent from 2.75 percent.
The previous change in the policy rate was a quarter point hike in December.
“There is considerable uncertainty about future economic developments, but we will most likely raise the policy rate again in May, followed by a further rise to around 3.5 percent in summer,” Governor Ida Bache said at the press conference.
At 6.3 percent, inflation was markedly higher than the inflation target in February. The bank cited higher wage growth and the weak krone exchange rate stoking inflation as factors that forced them to revise the policy rate.
Regarding the turbulence in the international banking markets in recent weeks, the governor said there are no signs of liquidity problems for Norwegian banks.
Norges Bank is always prepared to take the measures required to safeguard financial stability if needed, said Bache.
The central bank’s upwardly revised forecast for its policy rate and projection that the rates falling only meaningfully in 2025 sends a clear message that policymakers are not particularly worried about the recent turmoil in the banking sector, Capital Economics economist Jack Allen-Reynolds said.
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