Norway’s First Rate Hike Since Crisis Flagged for September

(Bloomberg) -- Norway’s central bank said it’s on course to start tightening borrowing costs within weeks, citing a “marked” rebound in the richest Nordic economy since lockdown restrictions eased. 

Norges Bank kept its main rate at zero as expected on Thursday while flagging that an increase will “most likely” arrive at its next decision in September, according to a statement from the monetary authority in Oslo. Its projections released in June suggested such a move would be followed by 25 basis-point hikes every quarter in the coming year. 

“We did not find any signal in the assessment that Norges Bank would be more cautious,” Kyrre Aamdal, senior economist at DNB Bank ASA, said in a research note. “We thus expect Norges Bank to raise the policy rate at the meeting in September 2021 to 0.25% and further to 0.50% in December.”

With an increase now effectively scheduled for Sept. 23, Norway finds itself at the vanguard of advanced economies unwinding emergency monetary stimulus. 

Such a tightening timetable suggests policy makers are confident the country can overcome any resurgence in the coronavirus even as the delta variant of the disease lurks as a threat to the global economy. That contrasts with New Zealand, where officials this week postponed a planned rate hike amid concern at the outbreak. 

Norway has weathered the pandemic better than many peers, aided by the fiscal power of its $1.4 trillion sovereign wealth fund, the world’s biggest. Analysts expect a consumer-driven economic expansion in the second quarter will have clearly exceeded central bank forecasts. 

Where Norway differs from some counterparts is that inflation isn’t yet foreseen to be much of a danger to the local economy, with the monetary officials reckoning price growth will still trail its target for years. That said, the wealth fund -- a part of the central bank -- sees inflation currently as the biggest threat to capital markets.  

“The reopening of society has driven a marked rise in activity, and unemployment has fallen further,” Norges Bank officials said. “Increased activity in the Norwegian economy suggests that inflation will pick up further out.”

Norway’s krone extended losses after the decision to touch 9.0086 per dollar, the weakest level in almost a month.

Pandemic Uncertainty

The room for budget stimulus available to the government has allowed Norwegian officials to avoid unconventional monetary policies such as negative interest rates or asset purchases, in contrast to counterparts such as the European Central Bank and the Riksbank of neighboring Sweden.

The Norwegian central bank cautioned that the pandemic remains a source of uncertainty and that new restrictions can’t be ruled out. 

While Norway replaced the U.S. last month as the new leader of the Bloomberg’s Covid Resilience Ranking, the concerns linked to new variants have forced the government to keep delaying the last stage of its reopening plan. 

Still, it hopes to complete full vaccination for all adults during the first two weeks of September after receiving one million extra doses of the Moderna vaccine through European Union cooperation.

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