Norway Flags December Rate Hike With Recovery on Track

(Bloomberg) --

Norway confirmed it’s on track to raise borrowing costs by year-end, saying the recovery in western Europe’s largest fossil-fuel exporter continues “broadly as expected.”

Norges Bank kept its benchmark interest rate at 0.25% on Thursday, as forecast, while reiterating that it will “most likely” raise next month, having already done so in September.

That hike was the first since the pandemic by a country whose currency features among the world’s 10 most-traded. The central bank has also flagged at least three rate increases next year.

“We’re convinced the December rate hike is a certainty -- only an Armageddon can stop that from becoming reality,” Nordea analysts Dane Cekov and Kjetil Olsen said in a report to clients. “Furthermore, we still expect a higher rate path from Norges Bank at their December meeting vis-à-vis the one from September.”

The richest Nordic economy on a per-capita basis has healed from the pandemic more quickly than most peers, as its $1.4 trillion sovereign wealth fund -- the world’s biggest -- helped fund stimulus measures.

That’s allowed the central bank to avoid unconventional monetary policies such as negative interest rates or asset purchases, in contrast to the European Central Bank and the Riksbank next door in Sweden. 

This quarter’s surge in energy prices has provided another boost to the oil-rich nation. The krone is 2021’s second-best performer among the G-10 group of major currencies.

Norges Bank’s announcement follows Wednesday’s decision by the Federal Reserve to start reducing bond purchases. Chair Jerome Powell said policy makers can be patient on raising interest rates, stressing the desire not to hinder the labor market’s revival.

Even as monetary officials in developed economies focus on the risk of supply shortages and surging demand entrenching upward price pressures, the Norges Bank said core inflation remains below-target, despite higher electricity costs stoking the headline rate.

“Looking ahead, higher economic activity and rising wage growth will likely lift underlying inflation, but recent krone appreciation could curb the rise in prices,” the bank said.

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