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Financial News: Norges Bank Signals More Hikes

Norges Bank Signals More Hikes

12/16/2021 - 07:05:00 (RTTNews)

(RTTNews) - Norway's central bank raised its key interest rate on Thursday, as expected, and signaled that policymakers will most likely hike it again in March. The Monetary Policy and Financial Stability Committee unanimously decided to raise the policy rate from 0.25 percent to 0.5 percent, Norges Bank said in a statement. The previous change in the rate was a quarter-point hike in September. "There is considerable uncertainty about the evolution of the pandemic and its effects on the economy," Norges Bank Governor Oystein Olsen said. "But if economic developments evolve broadly in line with the projections, the policy rate will most likely be raised in March."

The bank said the policy rate forecast is little changed from the September 2021 Monetary Policy Report and indicates a gradual rise in the policy rate in the coming years.

Monetary policy remains expansionary and policymakers assessed that the objective of stabilising inflation around the target somewhat further out suggests that the policy rate should be raised towards a more normal level. Further , a gradual normalization of the policy rate is consistent with continued high employment and higher interest rates will also help to counter a build-up of financial imbalances.

Meanwhile, policymakers expressed concern regarding the potential economic effects of the pandemic and containment measures in the period ahead. "If there is a need for more stringent and protracted containment measures that pull down economic activity through spring next year, further rate hikes may be postponed," the bank said.

The risk of a persistently high inflation, in the backdrop of potentially higher-than-projected increase in wages and prices due to capacity constraints and persistent global price pressures, could prompt policymakers to raise rates more quickly, the bank added. With oil prices well supported and gas prices continuing to rise, policymakers clearly felt that further tightening made sense this month, despite Omicron, ING economist James Smith said. Though cases have surged and restrictions have returned, Norway benefits from a reasonable start to its booster vaccine campaign, and like much of the developed world, we don't expect Omicron to make a lasting dent to Norway's economic recovery, the economist added.

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