Central bank raises interest rates

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Norway’s central bank announced Wednesday that it was raising interest rates another quarter-point, meaning most commercial lenders will raise their rates as well. Economists generally applauded the move, and most Norwegians seem able to afford it.

The executive board of Norges Bank said signs of revived economic growth prompted its decision to raise its key lending rate to 1.75 percent, from 1.5 percent.

That’s still very low, by historical standards, and means most home mortages will probably rise to around 4.25 percent. News reports before the rise had indicated that many Norwegians have been paying down their loans while interest rates are low, taking advantage of the extra affordability the low rates have brought.

Now their monthly payments will rise. Jan F Qvigstad, deputy governor of the central bank, linked the quarter-point hike to economic activity and inflation.

“Activity in the Norwegian economy has picked up and inflation is close to 2.5 percent,” he said. “Growth has revived in the US and in most European countries. Activity continues to increase in Asia.

“On the whole, the upturn abroad and in Norway has, as expected, gained a firmer foothold and the outlook for next year seems less uncertain. The executive board has therefore decided to raise the key policy rate now.”

Qvigstad also cited strong growth in private consumption and housing prices that are “rising sharply.” Unemployment also remains relatively low, given the global finance crisis.

The bank board, though, faces the dilemma that higher interest rates can further boost the value of the Norwegian currency, the krone , and that threatens exports for industrial concerns already worried about a lack of orders.

Qvigstad said the board “considered the alternative of keeping the key policy rate unchanged, but interest rates are low and the October increase … had a limited impact on bank lending rates.” The next monetary policy meeting will be held in February, but some economists don’t expect another hike then. One told Norwegian Broadcasting (NRK) that the hike now “comes at a good time.”