Norway’s central bank announced Thursday a sharper-than-expected interest rate hike and warned of more to come, as policymakers tighten monetary policies worldwide to fight surging inflation.
Central bank banks across the world have launched a series of rate increases in efforts to tame soaring consumer prices, but the curbing of easy money policies has raised fears that the policies could spark recessions.
Norway’s central bank raised its main rate by half a percentage point to 1.25 percent, its fourth hike since September, when it stood at zero.
The previous increases had been of 0.25 percentage points each and few analysts had predicted Thursday’s sharper hike.
“Prospects for a more prolonged period of high inflation suggest a faster rise in the policy rate than projected earlier,” Norges Bank governor Ida Wolden Bache said in a statement.
“A faster rate rise now will reduce the risk of inflation remaining high and the need for a sharper tightening of monetary policy further out,” she continued.
To curb inflation, the bank will now accelerate its tightening of its monetary policy and it now expects its rate to reach “three percent in the period to summer 2023,” while it previously expected it to reach 2.5 percent by the end of 2023.
The rate will “most likely” rise to 1.5 percent in August, based on the bank’s “current assessment of the outlook and balance of risks”, Wolden Bache said.
Consumer prices in Norway reached 5.7 percent year-on-year in May and core inflation excluding energy prices, the indicator used by Norges Bank, was 3.4 percent — well above the official monetary policy target of around two percent.
The US Federal Reserve unleashed its biggest rate hike since 1994 last week while the European Central Bank is expected to act in July with its first rate hike in more than a decade.