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Norway Monetary Policy June 2022

Norway: Norges Bank delivers larger-than-expected hike in June

At its 22 June monetary policy meeting, the Executive Board of Norges Bank unanimously voted to increase the sight deposit rate by 50 basis points, bringing it to 1.25%. The decision to raise was priced in by markets, although the size of the hike took market analysts largely by surprise—the move was the largest increase since 2002.

The decision was driven by a persistently high inflation rate, with the country’s ongoing robust performance providing further room for the increase. The board noted that headline inflation remains markedly above its 2.0% target, while core inflation has been higher than expected. Additionally, strong wage growth and imported goods inflation signal that it will likely remain above target “for some time”. Regarding activity, Norges Bank noted that there is little slack in the economy and unemployment levels have fallen more than expected. The Bank believes that a higher policy rate should not bring employment levels down given the tightness of the labor market.

In terms of forward guidance, Norges Bank hinted that it would deliver a 25 basis point increase at its next meeting, scheduled for August. Additionally, it now expects the sight deposit rate to reach 3.00% in the summer of 2023. That said, in the assessment of the balance of risks, the Bank noted that if upside risks materialize and inflation is higher than expected, the rate would be increased faster. At the same time, if downside risks were to materialize, the rate would be raised less than the Bank currently projects.

The next monetary policy rate decision is set to be announced on 18 August.

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