Norway central bank raises rates for 1st time since 2023 amid persistent inflation

Norway’s central bank raised its benchmark interest rate for the first time in more than two years on Thursday, citing persistently high inflation and the need to bring price growth back to target.

Norges Bank increased its key deposit rate by 25 basis points to 4.25%, marking its first tightening move since 2023.

The decision came as a surprise to most economists, as only five of 17 analysts surveyed by Bloomberg had expected a rate hike, while the majority projected no change.

“Inflation is too high, and there are prospects that inflation will remain elevated ahead,” policymakers led by Governor Ida Wolden Bache said in a statement.

“The committee judges that a higher policy rate is needed to return inflation to target within a reasonable time horizon,” the bank added.

The move places Norway among the more hawkish advanced economies, as several major central banks, including those in the eurozone and the UK, have signaled caution amid uncertainty over global energy prices and the Middle East crisis.

Norway, western Europe’s largest energy exporter, has faced persistent domestic inflationary pressures, with core inflation remaining above 3%.

Price growth has been supported by tight labor market conditions, low unemployment, and elevated wage costs across Scandinavia.

The central bank said Thursday’s move was in line with its March guidance, which had pointed to one rate increase this year.

Norway has struggled to bring inflation back to its 2% target since the start of 2021, despite previous monetary tightening.

Neighboring Sweden kept its policy rate unchanged at 1.75% earlier Thursday, maintaining a wait-and-see stance, while Australia raised rates for a third consecutive meeting earlier this week.