Central bank raises interest rates

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Interest rates rose another quarter-point on Thursday, after Norway’s central bank decided that it was time to gently step on the country’s economic brakes. Norges Bank‘s governor, Øystein Olsen, also warned that another interest rate hike looms later this year.

Norges Bank‘s headquarters, where the decision to raise the central bank’s key policy rate to 1.25 percent was announced Thursday morning. PHOTO: newsinenglish.no

“Our current assessment of the outlook and balance of risks suggests that the policy rate will most likely be increased further in the course of 2019,” Olsen stated.

The central bank’s policy rate guides all other interest rates in Norway, and now stands at 1.25 percent, up from 1 percent.

Commercial banks are likely to quickly raise mortgage- and other lending rates, while typically being more reluctant to raise rates on savings accounts. Since there’s usually a spread of at least two points, effective mortage rates including monthly fees are likely to creep closer to, or even exceed, 4 percent.

Olsen and his colleagues on Norges Bank’s executive board cited “solid” growth in the Norwegian economy and capacity utilization “somewhat above a normal level” as factors justifying the boost in the key policy rate. Underlying inflation is also “a little higher” than the board’s inflation target, the board stated.

The bank noted that trade tensions present uncertainty for the Norwegian economy as well as globally, while other economists continue to express concerns over Norway’s dependence on its increasingly unpopular oil industry and uncertain future demand for its fossil fuels. The bank board nonetheless believed that a rate hike was justified, since the upturn in the Norwegian economy “appears to be a little stronger” than projected earlier.

Norway’s krone immediately strengthened on news of the interest rate hike. After recently trading at slightly more than NOK 8.70 to the US dollar, a dollar cost just NOK 8.57 within 15 minutes of the interest rate announcement.

newsinenglish.no/Nina Berglund