Norway lifts rates by 50 basis points, expects another hike in November
The Norges Bank hiked its benchmark interest rate by 50 basis points to a 10-year high of 2.25% on Thursday as it looks to tackle rising inflation, and indicated that rates will most likely be lifted again in November.
Governor Wolden Bache pointed out that inflation is markedly above the Bank’s 2% target and said it’s likely that inflation will remain high for longer than previously projected.
"Many will be facing a squeeze on finances given the rapid rise in prices at the same time as the policy rate is being raised," Norges Bank said in a statement. "But a faster rate rise now reduces the risk of inflation becoming entrenched at a high level and thereby the need for a sharper tightening of monetary policy further out."
The Norwegian bank, which has lifted rates from zero over the past year, noted that previous rate hikes were starting to have "a tightening effect" on the economy. "This may suggest a more gradual approach to policy rate setting ahead," it said.
Jack Allen-Reynolds, senior Europe economist at Capital Economics, said: "For now we think the odds are increasingly skewed towards another 50bp hike in November.
"We know from recent experience that we should take policymakers’ interest rate guidance with a pinch of salt. And more fundamentally, capacity utilisation is high, inflation is strong and the new forecasts published today show that policymakers still expect CPI-ATE inflation to remain above the 2% target even by the end of 2025.
"After November, there is a clearer case for the pace of tightening to slow. Interest rates will be approaching more neutral levels, and since policymakers have again highlighted the uncertainty around the outlook, they might want to move in smaller steps to reduce the risk of tightening too much."
Earlier on Thursday, the Swiss National Bank hiked interest rates by 75 basis points, as expected. The SNB lifted its benchmark interest rate to 0.5%, having announced its first increase in 15 years in June, to -0.25%. The Swiss central Bank had kept rates steady at -0.75% since 2015.
On Wednesday, the US Federal Reserve announced a 75-basis points increase as expected and vowed to "keep at it" as it tackles surging inflation. The US central bank also cut its economic growth expectation for this year to 0.2% from 1.7% growth in June.
At midday, the Bank of England is due to make its latest policy announcement, amid expectations of a 50 to 75 basis points increase.