Norway Holds Interest Rate at 2.75 percent, Signaled More Hikes Ahead

Norway’s central bank, the Norges Bank’s Monetary Policy and Financial Stability Committee unanimously kept the policy benchmark interest rate at 2.75% in its January 2022 meeting, in line with market expectations, and signaled a further rate hike in the upcoming meeting.  The Committee noted that the latest inflation readings were well above the central bank’s target of 2%. said the policy rate will need to be increased somewhat further to bring inflation in line. The bank had five consecutive hikes by December, equaling the sharpest hike since 2002 and lifting the key rate to levels not seen since 2009.

Norway Norges Bank Headquarters Oslo

“The future policy rate path will depend on economic developments. The policy rate will most likely be raised in March”, says Governor Ida Wolden Bache.”, says Governor Ida Wolden Bache.

The Norwegian policy rate, now at its highest since 2009, is currently set to peak at 3% next year and could start falling in 2024, Norges Bank’s forecasts showed.

“This may suggest a more gradual approach to policy rate-setting ahead,” it added.

Norway benchmark interest rate

Market Reaction

The Norwegian Krone recovered some losses after the decision, trading 0.4 percent weaker at about 10.72 against the euro as of 9:30am in London. Norway’s currency has weakened 7 percent over the past year versus the euro, the biggest depreciation among G10 peers together with the Swedish krona.

Forecasts for future rate hikes by June were lowered to 54 basis points, the lowest in more than a month, according to forward-rate agreements.


Norway’s annual inflation rate eased to 5.9% in December 2022, below market expectations of 6.1% and from 6.5% in the previous month. It was the softest increase in consumer prices since May.

Norway CPI Inflation Rate
  • Cost mainly slowed for food & non-alcoholic beverages (11.5% vs 12.7% in November), housing & utilities (2.4% vs 4.9%), clothing & footwear (1.4% vs 2.1%), and transport (7.8% vs 9.6%).%).
  • Inflation increased for or furnishing, household goods & maintenance (9.5% vs 7.6%), communication (5.2% vs 1.8%), recreation & culture (7.1% vs 5.6%) and restaurants & hotels (7.4% vs 6.6%).
  • CPI adjusted for tax changes and excluding energy products, rose 5.8% year-on-year.
  • On a monthly basis, consumer prices edged higher to 0.1%, following a 0.2% drop in November.

Norges Bank said in their statement; “SBased on the Committee’s current assessment of the outlook, the policy rate will need to be increased somewhat further to bring inflation down towards the target. Since Monetary Policy Report 4/22, the labour market appears to have been a little tighter than projected. Continued pressures in the Norwegian economy may contribute to keeping inflation elevated. These developments could suggest raising the policy rate at this meeting. On the other hand, there are prospects that energy prices will be lower than expected earlier, and global inflationary pressures appear to be easing. The policy rate has been raised considerably over a short period of time, and monetary policy has started to have a tightening effect on the economy. This may suggest a more gradual approach to policy rate setting.”

The outlook for the Norwegian economy is more uncertain than normal.

Norway Oil Fund

A further example of this foresight is the ‘oil fund’ which began in 1996 when the oil revenue from the government was transferred to the fund for the first time. The mission of the fund is to provide financial wealth and stability for future generations of Norwegians once the oil revenues declines.

”The Government Pension Fund Global is saving for future generations in Norway. One day the oil will run out, but the return on the fund will continue to benefit the Norwegian population.” via Norway Fund

The next largest Sovereign wealth funds other than China are also oil and gas nations; UAE, China, Kuwait and Saudi Arabia

Largest Sovereign Wealth Funds (2017)

  1. Norway US$1trillion
  2. UAE US$828 billion
  3. China US$814,000
  4. Kuwait US$524 billion
  5. Saudi Arabia US$514 billion

Source: Norway, Sovereign wealth fund institute

Clearly the small nordic nation has been very successful in it’s investments and is prudent when comes to monetary policy.

The Fund is managed by Norway’s central bank, Norges Bank.  Norges Bank Investment Management ” aims to make the most of the fund’s two distinguishing characteristics, its long-term approach and its considerable size, to generate strong returns and safeguard wealth for future generations.”

The aim of the fund was diversification from oil and to invest in opportunity. “We invest in almost 9,000 companies and have investments in 77 countries.’ Says Norges Bank on their website.

Outside of Oslo Norges Bank has offices in Luxembourg, Tokyo, LONDON NEW YORK SINGAPORE and SHANGHAI to manage their investments. The spread gives you an idea of their focus.

Source: Norges Bank

From The Traders Community Research Desk