First Central Bank to Raise Interest Rates

Norway Norges Bank Raises Interest Rates

Norway’s central bank on Wednesday raised its key interest rate by 25 basis points to 1.5 percent, becoming the first major European nation to tighten its credit grip since the financial crisis began more than a year ago.

But the world’s top central banks show no inclination to raise rates any time soon. The following discusses the major central banks which may tighten policy next.

It is the first rate hike by Norges Bank since June 2008.

“Developments indicate that it is appropriate to raise the key policy rate now,” Norges Bank Governor Svein Gjedrem said in a statement.

The central bank said in the statement that inflation has been slightly higher than expected while activity in the Norwegian economy has picked up more rapidly than expected.

Economic growth has been stronger than expected, unemployment is low and house prices are swinging higher. The government has a slightly expansionary budget. But the strength of the crown EURNOK= NOK= is a source of concern to the central bank.

“Inflation has been slightly higher than expected. Unemployment is considerably lower than previously projected. The global economy is in a deep downturn, but there are signs of renewed growth. Activity in the Norwegian economy has picked up more rapidly than expected. The Executive Board considered the alternative of increasing the key policy rate at the previous monetary policy meeting. Developments indicate that it is appropriate to raise the key policy rate now,” says Governor Svein Gjedrem.

After Wednesday’s decision, Norges Bank said its main rate would be between 1.25 and 2.25 percent until late March next year. Analysts believe the bank seeks to keep rates around
the mid-point of the range, so they believe there may be one more hike during the next two policy meetings.

The Norwegian central bank’s move follows a surprise interest rate hike on Oct. 6 by the Reserve Bank of Australia, which became the first among the Group of 20 developed and emerging nations to shift from an emergency mode since the crisis.

The Australian Reserve Bank lifted its cash rate to 3.25 percent from 3.00 percent on Oct. 6, becoming the first G20 central bank to raise rates this year.

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