Norges Bank's Committee unexpectedly decided to raise interest rate from 4.25% to 4.5% on December 13, citing high inflation as a key concern. This decision came unexpectedly, as the markets had anticipated that interest rates would remain unchanged. The decision was all the more surprising given the dovish market sentiment following Jerome Powell's speech yesterday.
The bank acknowledges that the economy is cooling, but inflation remains significantly above the 2% target, driven by increased business costs, high wage growth, and the depreciation of the krone. This rate hike aims to mitigate the risk of prolonged high inflation. The policy rate is expected to remain at 4.5% until autumn 2024 before potentially decreasing, depending on economic conditions.
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Open account Try demo Download mobile app Download mobile appThe bank's decision reflects a challenging balance between curbing high inflation and avoiding excessive economic contraction. International inflation is decreasing, and other central banks are expected to start cutting rates in spring 2024. High labor costs and a depreciated krone contribute to sustained inflation in Norway. The bank projects that inflation will gradually approach the target in the coming years, with unemployment rising slightly and wage growth slowing.
As a result, the Norwegian krone has strengthened dynamically and remains one of the strongest currencies today. On the USDNOK rate, we observe a decrease of about 2.20%. The quotes have broken through the resistance around 10,600-10,700 and are currently heading towards the next limit at 10,500. Even a considerable time after the decision, we can still see no weakening of the selling pressure on the exchange rate. Additionally, the quotes are supported by a weaker dollar.
Source: xStation 5
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