Norway central bank raises rate to 4.0%, eyes September hike

OSLO (Reuters) -Norway’s central bank raised its benchmark interest rate by 25 basis points (bps) to 4.0% on Thursday to curb inflation, as widely expected, and said it would likely hike again in September.

Thursday’s hike had been expected by all 31 economists polled by Reuters, and a majority of poll participants predicted the rate would hit a peak of 4.25% by the end of the third quarter, in line with the central bank’s projection.

“If the economy evolves as currently anticipated, the policy rate will be raised further in September,” Norges Bank Governor Ida Wolden Bache said in a statement.

The crown strengthened to 11.50 against the euro at 0804 GMT, from 11.52 just before the announcement.

Norway’s annual core inflation, which excludes energy costs, stood at 6.4% in July, down from a record 7.0% in June, and has remained above the bank’s 2% target since February last year.

“It has turned out more or less as Norges Bank predicted – inflation has been a bit higher which could have encouraged a slightly more aggressive rate increase but then the crown has strengthened a bit,” Nordea economist Kjetil Olsen told broadcaster TV2.

If the currency proves to be weaker than projected or pressures in the economy persist, the policy rate may have to rise to more than 4.25%, Norges Bank said.

“If there is a more pronounced slowdown in the Norwegian economy or inflation declines more rapidly, the policy rate may be lower than envisaged,” the central bank added.

The Norwegian currency, which strengthened against the euro during the early parts of summer, has weakened following the release of milder July inflation data.

The European Central Bank last month raised its key policy rate to 3.75%, but a narrow majority of economists polled by Reuters expect the ECB to temporarily pause its rate-hiking campaign at its September meeting.

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