Norway Rate Hike Locked and Loaded for June to Quell Inflation

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Norway's central bank confirmed its plan to deliver a fourth increase in borrowing costs next month and repeated its warning of faster hikes if needed to quell inflation. 

Norges Bank said on Thursday that a hike in June is “most likely,” as it signaled that officials remain comfortable with the present timetable of quarterly moves lasting until 2024. Policy makers also kept the benchmark interest rate at 0.75%, as forecast by economists.  

“If there are prospects of persistently high inflation, the policy rate may be raised more quickly than indicated by the policy rate forecast in the March Report,” officials said. 

With the Norwegian economy having weathered the pandemic better than most, Norges Bank was the first among nations with the world's 10 most-traded currencies to begin raising borrowing costs last year. 

Its steady approach of measured quarterly moves contrasts with a more aggressive pickup in tightening by global peers. On Wednesday, Iceland notched up its pace of action against inflation with a 100 basis-point increase, while the U.S. Federal Reserve then quickened too with a half-point hike in its benchmark.   

“Policy rate expectations abroad have risen considerably, and it is uncertain how a rapid rise in policy rates will affect financial markets and trading partner activity,” Norwegian officials said. 

Another increase in June by Norway's central bank would follow on from its move in March, the third since the onset of the pandemic. The officials' warning of the possible need for faster hikes if inflation persists is a scenario that most analysts don't see evidence of yet.

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While policy makers have projected three more rate increases this year and signaled another four hikes next year, the market expects growing wage and price pressure to spur even faster tightening in the coming months for a total of five hikes this year.

Most economists point to wage increases so far being largely in line with the central bank's forecasts. Pressure on officials to consider an even steeper rate path has also eased after core inflation accelerated less than estimated in March and economic growth came in weaker than expected in February. 

“The committee was also concerned with the risk of accelerating price and wage inflation in Norway,” the central bank said. 

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