Norges Bank Signals Tightening To Continue In September

RTTNews | 338 days ago
Norges Bank Signals Tightening To Continue In September

(RTTNews) - The Norwegian central bank raised its interest rates on Thursday, in line with its guidance in June, and hinted at further tightening ahead if the economic situation pans out as expected.

The Monetary Policy and Financial Stability Committee unanimously decided to raise the policy rate by 0.25 percentage point to 4 percent, the Norges Bank said in a statement.

The decision matched economists' expectations.

"The future policy rate path will depend on economic developments. If the economy evolves as currently anticipated, the policy rate will be raised further in September", Norges Bank Governor Ida Wolden Bache said.

Policymakers assessed that economic activity remained high and the labor market was tight. The policy rate was having a tightening effect and the pressures in the economy were easing, the bank said.

Meanwhile, consumer price inflation remained high, despite some slowing, and well above the target. Core inflation also stayed elevated. "The Committee assesses that a somewhat higher policy rate is needed to bring inflation back to target," the bank said.

Further, policymakers assessed that a higher policy rate than signaled in June may be required to rein in inflation if krone proves to be weaker than previously projected. On the other hand, if there is a sharp slowdown in the economy or inflation decelerates rapidly, the policy rate may be lower than envisaged in June, the bank said.

Norges Bank is poised for one final rate hike in September, economists at ING said. The impetus to raise rates further is fading as other major central banks are either at or close to the peak for policy rates, they pointed out. The domestic backdrop continues to improve for the krone, ING added.

The Norwegian krone is likely to strengthen as global investor risk appetite improves. This will pull inflation down more quickly than the central bank is forecasting, allowing policymakers to cut interest rates more rapidly too, Capital Economics economist Jack Allen-Reynolds.

The research firm said a 25bps move is most likely, which would take the policy rate to 4.25 percent, in line with the peak in the June Norges Bank projections and the highest level since late 2008.

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