Norway Raised Interest Rate by 25bps, Norwegian Crown Fell Against Euro

Norway’s central bank, the Norges Bank’s Monetary Policy and Financial Stability Committee unanimously raised the policy benchmark interest rate by 25bps to 2.50% in its November 2022 meeting, in line with market expectations, and signaled a further rate hike in the upcoming December meeting.  The bank has had four consecutive hikes since July, equaling the sharpest hike since 2002 and lifting the key rate to levels not seen since 2011, as the Committee noted that the latest inflation readings were well above the central bank’s target of 2%. 

Norway Norges Bank Headquarters Oslo

“Economic activity is high in Norway, and unemployment is at a historically low level. Inflation has continued to edge higher and is markedly above our target of 2 percent. We are raising the policy rate to curb inflation”, says Governor Ida Wolden Bache.

The Norwegian policy rate, now at its highest since 2011, 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 crown fell on the more dovish stance triggered krone losses following the decision with the Euro to Krone (EUR/NOK) exchange rate strengthening to 10.35 from 10.26. With Sterling also under pressure in global markets, the Pound to Krone (GBP/NOK) exchange rate edged only slightly higher to 11.95.


Norway’s annual inflation rate unexpectedly jumped 6.9% in September 2022, accelerating at its fastest pace since 1988,

Norway CPI Inflation Rate
  • Followed a 6.5% gain in August and defied expectations for a further slowdown to 6.2%.
  • Prices accelerated sharply on an annual basis in September for: food & non-alcoholic beverages (12.1%), transport (11.3%), restaurants & hotels (8.7%), furnishings, household equipment & routine maintenance (7.6%) and housing, water, electricity, gas & other fuels (5.8%).
  • The core inflation rate, which is adjusted for taxes and energy prices, surged 5.3% year-on-year in September 2022, hitting a new record high and topping the central bank’s 2% target for the eight consecutive month.

Norges Bank said in their statement that inflation has increased more than projected, and the labour market appears to be a little tighter than previously anticipated. These developments could suggest raising the policy rate by more than 0.25 percentage point at this meeting. On the other hand, there are signs that some areas of the economy are cooling down, and prospects for lower-than-expected freight and energy prices may curb inflation ahead. The policy rate has been raised markedly over a short period, and monetary policy is beginning to have a tightening effect on the economy. This may suggest a more gradual approach to policy rate setting.

The outlook is more uncertain than normal. The future policy rate path will depend on how the economy evolves.

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