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Norway Monetary Policy August 2022

Norway: Norges Bank delivers another 50 basis point hike in August, hints at more to come

At its 17 August monetary policy meeting, the Executive Board of Norges Bank unanimously voted to increase the sight deposit rate by another 50 basis points, bringing it to 1.75%—its highest level since February 2012. The raise, which came on the heels of June’s 50 basis point-hike, was priced in by markets.

The decision was driven by persistently high inflationary pressures, with headline inflation accelerating further above Norges Bank’s 2.0% target in July. The board said that inflation has been at its highest level in decades in recent months and has surpassed expectations. Regarding activity, Norges Bank noted that the labor market is tight and that the unemployment rate is lower than expected. Additionally, the Bank stated that there is little slack in the Norwegian economy and that elevated inflation may impact private spending quicker than previously thought, providing further room for the Bank’s rate increase.

In terms of forward guidance, the Bank noted that, given the balance of risks to the inflation outlook, price pressures could remain high for a longer-than-expected period of time. Thus, the Bank assessed the policy rate might need to be raised at a brisker pace than forecasted in June. Norges Bank hinted that it would deliver another hike at its next meeting, scheduled for 22 September.

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