Norway increases its interest rates by half a percentage point

• Norway’s Norges Bank raises interest rates by 0.5 percentage points to 1.25 percent.
• First hike since July 2002, warning of the danger of inflation rising further in a robust economy.
• US Federal Reserve raised rates last week in its largest rise since 1994.

Norway joined the club of central banks raising interest rates by exceptionally substantial amounts, warning of the danger of inflation rising even further in a robust economy.

Thursday, the Norges Bank increased interest rates by 0.5 percentage points to 1.25 percent, the first hike since July 2002.

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“Prospects for a more prolonged period of high inflation suggest a faster rise in the policy rate than projected earlier. A faster rate rise now will reduce the risk of inflation remaining high and the need for a sharper tightening of monetary policy further out,” said Ida Wolden Bache, governor of Norges Bank.

Norway, the major petroleum producer in western Europe, is experiencing an economic boom, with the central bank remarking that unemployment was at a “particularly low level” and that spare capacity was scarce.

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Norges Bank was the first major western central bank to boost interest rates following the commencement of the Covid-19 epidemic. However, it is now following the US Federal Reserve, which raised rates by 0.75 percentage points last week in its largest rise since 1994, and other central banks from Iceland to India that have resorted to significant rate hikes in an effort to manage inflation.