Key facts
- Norway's central bank raised its policy interest rate by 25 basis points to 4.50%.
- The bank indicated further rate hikes may be necessary to curb inflation.
- Sweden's central bank signalled it would likely tighten policy before year-end.
- Higher fuel prices from the Middle East conflict risk slowing inflation's return to target.
- The Norwegian crown strengthened to 10.76 against the euro after the announcement.
Norway's central bank raised its policy rate by 25 basis points to 4.50% on Thursday, with Governor Ida Wolden Bache signaling that further increases may be necessary to curb inflation. The move follows similar actions by other major central banks globally, including the US Federal Reserve and the European Central Bank, as they grapple with rising price pressures exacerbated by the war in Ukraine and its impact on energy prices.
While Norway's core inflation stood at 3.0% year-on-year in August, below the central bank's forecast but still above its 2% target, policymakers are concerned that higher fuel costs could feed into broader price increases and wage demands. Sweden's central bank, the Riksbank, left its rates unchanged but indicated a likely tightening before year-end if inflation and economic activity outlooks do not change. Investors anticipate another rate hike in Norway and four in Sweden by spring.
The Swiss National Bank remains an outlier, maintaining rates at zero despite raising its inflation forecasts, aided by the safe-haven status of the Swiss franc. However, money markets expect the SNB to raise rates three to four times over the next year. Bond markets reflect inflation worries, with investors demanding the highest yields in two decades for long-dated government debt, partly driven by strong US economic data and investment in artificial intelligence.