Norway: Norges Bank hikes interest rate on 21 March and points to another increase within six months
Norges Bank hiked the sight deposit rate to 1.00% at its 21 March monetary policy meeting from 0.75%, where it had been since 21 September last year. Although the decision was broadly in line with market analyst expectations, the Bank unexpectedly gave a strong signal that it would hike the deposit rate again within six months, which immediately caused the krone to strengthen after the announcement. This comes at a time when other monetary policy institutions around the world are resisting fresh hawkish moves in the short-term, such as the U.S. Federal Reserve and the European Central Bank.
The interest rate move on 21 March was driven by above-target inflation, with inflation in February at 3.0%, which was above Norges Bank’s 2.0% target for the eighth consecutive month. At its meeting, the Central Bank raised its inflation forecast for 2019 to 2.3%, which is substantially higher than the previous 1.8% projection. In addition, Norges Bank said the economy “appears to be stronger than anticipated earlier” and raised its economic growth projection for 2019 to 2.4% from 2.0%. Meanwhile, Norges Bank noted that rising global protectionism and political uncertainty, including that related to the UK’s exit from the EU, threaten monetary policy tightening in the future.
All told, the forward-looking takeaway is that the sight deposit rate “will most likely be increased further in the course of the next half-year”, according to Norges Bank, with a “somewhat lower policy rate further out” than previously forecast. The next monetary policy decision will be taken on 9 May.