(Bloomberg) — Norway is likely to stick with its pace of half-point interest-rate increases this week rather than joining the global pack of central banks opting for bigger moves.
The central bank, which is confronting inflation near a three-decade high, will raise its key benchmark on Thursday to 2.25%, according to all economists surveyed by Bloomberg. That would bring the rate to the highest level since 2011.
Norges Bank was the first central bank overseeing one of the so-called Group of 10 most-traded currencies to begin stimulus removal last year after its oil-rich economy weathered the pandemic better than most. That hasn’t stopped inflation from accelerating above 6%, while growth is now seeing the first signs of cooling.
Despite global peer pressure to accelerate tightening, policy makers led by Governor Ida Wolden Bache will be focused on the need to avoid too much of a shock to their finances, according to Nordea economist Dane Cekov.
“Central banks around the world have gotten in a rush to bring rates close to their view of the neutral rate level and above,” he said. “Given the high rate sensitivity of Norwegian households, we believe Norges Bank will stick to a more gradual pace of hikes” although a 75 basis point-hike “cannot be fully excluded.”
Norges Bank’s policy changes affect most borrowers relatively swiftly due to a high ratio of floating-rate loans. Adding to that, household debt is high — equivalent to 241% of net disposable income in 2021, and second only to Denmark, according to OECD data.
Thursday’s announcement follows a surprisingly large full-point increase in borrowing costs by Sweden — its biggest move in almost three decades under the current policy regime.
The US Federal Reserve is expected by lifting its key rate by 75 basis points on Wednesday, the eve of likely hiking decisions by Norway, Switzerland, and the Bank of England.
“The hike of at least 50 basis points is almost a done deal,” UniCredit analyst Chiara Silvestre said. “Risks of a bolder move are very high, especially after the Riksbank hiked by 1%.“ Still, she expects the rate to peak at 3%, in line with Norges Bank’s June forecast.
In June, Norges was forced to accelerate an earlier plan to gradually tighten the policy in 25 basis-point steps, as inflation has continued to exceed its forecasts. While price growth slowed in August from a 34-year-high, core inflation that excludes energy prices has kept accelerating.
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