Financial News: Norges Bank Hikes Key Rate By 25 Bps;

Norges Bank Hikes Key Rate By 25 Bps; Signals Another Hike

(RTTNews) - Norges Bank raised its policy rate by a quarter-point on Thursday to bring inflation back to the target and signaled another hike if inflation outlook warrants. The Monetary Policy and Financial Stability Committee decided to hike the policy rate to 4.50 percent from 4.25 percent. The bank had raised the rate by 25 basis points in May.

"It will likely be necessary to keep the policy rate elevated for a time, and the Committee is prepared to raise the policy rate further if needed to bring inflation down to the 2% target within a reasonable time horizon", Governor Ida Wolden Bache said.

The committee observed that inflation was markedly above target but underlying inflation remained lower than projected in June. Nonetheless, inflation outlook further ahead does not appear to have changed materially.

The rapid increase in business costs in recent years will likely contribute to keep inflation elevated ahead. High inflation over time can lead households and firms to begin planning for persistently high inflation. It may then become stickier and harder to bring inflation down again, the committee observed.

Although the committee does not want to restrict the economy more than needed, a somewhat tighter monetary policy stance is needed to return inflation to target within a reasonable time horizon, the bank added.

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