Norway to raise rates by 25 basis points this week, faster pace to come

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OSLO – Norway’s central bank is expected to raise its benchmark interest rate again this week and signal a faster rise in the cost of borrowing in the third quarter of the year as inflation soars, according to a Reuters poll on Monday.

Of the 20 economists surveyed, 14 predicted that Norges Bank will rise 25 basis points on June 23 at a rate of 1.00%, in line with the central bank’s own forecast, while six said an increase of 50 points at 1.25% was the most likely outcome. .

Last week, Statistics Norway also said Norges Bank is expected to rise 50 basis points this month, which would be the biggest increase since 2002.

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Central banks around the world are struggling to contain price growth in the wake of the pandemic and the war in Ukraine, which led to a 75 basis point hike in the US Federal Reserve rate last week, as well as a surprise increase in the Swiss National Bank and new policy tools at the ECB.

Norwegian consumer prices in May rose 5.7% year-on-year, even as the government partially capped soaring electricity bills. Core inflation, which excludes energy, came in at 3.4%, beating the central bank’s target of 2.0%.

The majority of participants in the Reuters poll now say rates will hit at least 1.50% by the end of September, higher than the 1.25% forecast by the central bank in its March update.

Capital Economics predicted an even faster pace, arguing for a 50 basis point hike this week, 25 in August and another 25 in September, taking the key rate to 1.75%.

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“Essentially, given rising global food prices and a weaker Norwegian currency, inflation for imported goods is expected to rise further over the coming months,” they wrote in a client note.

Additionally, Norway’s scorching labor market is also expected to translate into higher inflation in labor-intensive service industries, he said.

The policy rate is now expected to hit 2.50% in the second quarter of 2023, according to the survey, six months earlier than Norges Bank’s own March forecast.

The central bank released a business survey last week showing prospects for faster wage increases and slower overall growth as the economy hits capacity constraints.

(Reporting by Gwladys Fouche and Terje Solsvik; Polling by Sarupya Ganguly in Bengaluru; Editing by Ross Finley and Alison Williams)