Norway Signals Faster Rate Increases After Price Target Shakeup

Updated on
  • Key interest rate kept as estimated at record low of 0.5%
  • Rate path raised to signal a potential September increase
Norges Bank Governor Oystein Olsen discusses Norway’s interest-rate path, the krone, inflation and the economy.

Norway’s central bank signaled it will move faster in raising interest rates as a change in the inflation target and accelerating growth opens up for the first tightening in seven years.

Policy makers said an increase is likely after the summer of 2018, raising their rate path to pencil in a tightening by September. They kept the benchmark deposit rate at a record low of 0.5 percent, which was as anticipated by all 24 analysts surveyed by Bloomberg. The krone surged as much as 0.9 percent, hitting the strongest since November.

“Economic growth appears to be somewhat stronger than expected, and the output gap for Norway is closing,” the central bank said. “Underlying inflation is low, but rising capacity utilization will probably push up price and wage inflation further out.”

Norway is joining other central banks globally in seeking to retreat from the extreme monetary stimulus unveiled in the aftermath of the financial crisis. Sweden’s Riksbank has signaled a rate increase in the second half of this year, while the European Central Bank is preparing its own slower exit.

It’s the fourth consecutive meeting at which Norges Bank has brought forward the timing of rate increases after policy makers last summer abandoned any mention of further easing thanks to Norway’s rebound from the 2014 oil crisis.

Norway's Heading Up

Rate path revised higher as economic growth accelerates

Source: Norges Bank March Monetary Policy Report

The decision on Thursday was “hawkish,” giving a 50 percent probability for an increase already in August, according to analysts at Nordea Bank AB. “As such, if the economy and inflation surprises on the upside a hike at the August meeting should not be ruled out given today’s communication,” analysts Joachim Bernhardsen and Erik Bruce, said in a note.

Olsen said that policy makers didn’t want to be more precise than indicating a hike after the summer, adding at a press conference that it remains to be seen whether August is a summer month.

Read more on economy here

The government this month also decided to lower the inflation target, opening for a faster tightening of policy in the short run.

Read more on target change here

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