Norway’s central bank (Norges Bank) went ahead and raised its key policy rate by another quarter-point on Thursday, and warned it may go up again in the New Year. The goal is still to bring inflation down.
The bank’s committee in charge of monetary policy and financial stability “unanimously” believes that higher interest rates “are still needed to dampen inflation.” It noted that consumer prices “have risen rapidly” and inflation remains “markedly” above the bank’s target, even though it has eased a bit.
The central bank ideally wants inflation to hover at around 2 percent, while the latest figures from state statistics bureau SSB put it at 6.5 percent in November. That was down a full percentage point from 7.5 percent in October, mostly because of pre-holiday sales promotions, but central bankers think it’s still too high.
They remain concerned about much higher prices for food and electricity. Even though higher interest rates will also boost monthly mortgage payments for many Norwegians, they think higher rates in the long run will help curb demand and bring inflation down.
“Activity in the Norwegian economy is still high and unemployment has remained very low,” the bank stated in its interest rate announcement. “At the same time, the economy is slowing down and higher inflation is reducing household purchasing power.” Recent price hikes have kept inflation “higher than projected,” according to Norges Bank, and it’s “expected to remain high for longer than previously projected.”
That’s what prompted Thursday’s quarter-point rise in the bank’s policy rate to 2.75 percent. Its overnight lending rate rose to 3.75 percent and mortgage rates are now likely to also rise accordingly.
More uncertainly than ‘normal’
Norges Bank Governor Ida Wolden Bache noted that forecasts for the Norwegian economy “are more uncertain than normal, but if the economy evolves as anticipated, the policy rate will be around 3 percent next year.” That’s in line with SSB’s estimate as well.
That’s a quarter-point higher than what the central bank had expected just last month. Housing prices, meanwhile, are already declining and some economists think the inflation rate has already peaked. Elisabeth Holvik, chief economist for Sparebank1 in Norway, told newspaper Dagens Næringsliv (DN) last week that she expects a “clear cooling” of the economy ahead, as do her colleagues.
Some layoffs already
One indication of that came last week when the historic glass manufacturer and tourist attraction Hadeland Glassverk, which has been in business since the mid-1700s, laid off half its staff. Fully 65 of its 125 employees were given notice, with owner-investor Atle Brynestad blaming high electricity prices most of all. That’s made production and operating costs “painfully” high, he told DN.
Brynestad claimed that the glass factory located at the southern end of the Randsfjord in Hadeland is now getting electricity bills for as much as a million kroner a week, up from around NOK 2 million for an entire year when rates were a fraction of what they are now. He also expressed disappointment that the Norwegian government hadn’t managed to offer relief as promised, either in the form of compensation or a fixed-rate policy businesses could accept.