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Raises policy rate by 25 basis points to 3.25%
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Expects to hike again in June
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Weak currency could trigger more hikes
(Adds analyst reaction, updates prices)
By Victoria Klesty and Gwladys Fouche
OSLO, May 4 (Reuters) - Norway's central bank raised its
benchmark interest rate by 25 basis points (bps) on Thursday to
3.25%, as expected, to curb inflation, and added it was likely
to hike again in June, with more tightening to follow if the
currency stayed weak.
All 26 economists polled in the period from April 21 to 26
had expected a hike of 25 basis points, and all but one
believed the rate would rise to 3.50% in June.
Rates could continue to rise to counter the effects of a
weak Norwegian currency, the central bank said.
"If the krone remains weaker than projected or pressures in
the economy persist, a higher policy rate than envisaged earlier
may be needed," Norges Bank Governor Ida Wolden Bache said in a
statement.
The crown initially weakened after the news at 0800 GMT but
soon recovered to trade at 11.81 against the euro , a
rise of 0.6% on the day.
"We expect rates to peak at 3.75% but a high of 4% is
becoming more and more likely," Nordea Markets said in a note to
clients.
The Norwegian currency has been by far the
worst-performing among major currencies this year, reflecting
widening interest differentials and increased risk aversion,
making imports more expensive and feeding inflation.
The I-44 import-weighted exchange rate index currently trades at 124.8, some 6% weaker than Norges Bank's
most recent full-year 2023 projection made in March.
Norway's core inflation, which excludes energy costs,
stood at 6.2% in March, and has remained above the bank's 2%
target since February last year.
Norges Bank said a higher policy rate was needed to dampen
the rise in consumer prices.
"Growth in the Norwegian economy has slowed, but activity
remains high. The labour market is tight, and wage growth is set
to be higher in 2023 than last year," it said. "The future
policy rate path will depend on economic developments."
(Reporting by Victoria Klesty and Gwladys Fouche; Editing by
Terje Solsvik, Clarence Fernandez and Christina Fincher)
