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Norway’s central bank raises interest rates to 1.25%, in a tougher-than-expected decision

Norges Bank, as the central bank of Norway is known, raised interest rates by 50 basis points this Thursday (23) to 1.25%.

The decision, considered surprising and more “hawkish” (harder) than most analysts expected, reflects the entity’s concerns about above-target inflation and persistent price pressures.

In a statement, BC President Ida Wolden Bache also contracted a new high of 25 basis points for the next monetary meeting in August.

“The prospect of persistently higher inflation implies faster interest rate hikes than previously projected. A faster rate hike now will reduce the risk of inflation remaining high and the need for a stronger monetary policy tightening down the road,” Wolden Bache said.

The Norges Bank Committee said it was concerned that low idle capacity in the country’s economy, international price pressures and a weakening Norwegian krone could end up fueling further inflation.

At the same time, a more aggressive increase in interest rates around the world could provoke an abrupt economic slowdown and a faster reduction in external inflationary pressures, he pointed out.

The Norwegian central bank’s “somewhat surprising” decision suggests that the local basic interest rate will rise to 2.25% by the end of 2022 and end 2023 between 3% and 3.25%, projects the bank Nordea. Most analysts had expected a more subdued rate hike of 25 basis points.

Although Norges Bank has indicated a smaller increase for August, TD Securities assesses that the market could be surprised again.

“Inflation in Norway remains low on a relative basis but is likely to rise further. Strong upside surprises in the coming months could push the central bank to a 50 basis point hike in August or September.”

Source: CNN Brasil

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