Norway Raised Interest Rate by 50bps with More Hikes Likely While Inflation Rampant

Norway’s central bank, the Norges Bank’s Monetary Policy and Financial Stability Committee unanimously raised the policy benchmark interest rate by 50bps to 1.75% in its August 2022 meeting, in line with market expectations, and signaled a further rate hike in the upcoming September meeting.  The bank in July also rose rates by 50bp, equaling the sharpest hike since 2002 and lifting the key rate to levels not seen since 2012, as the Committee noted that the latest inflation readings were well above the central bank’s target of 2%. 

Norway Norges Bank Headquarters Oslo

Norway’s economy has rebounded in 2021 along with oil and Norges Bank in September 2021 became one of the first central banks to hike rates since the start of the pandemic. Norway is a lesson in foresight and saving for the future and taking account of finite resources and their limitations. This is the antithesis of the US Federal Reserve and Bank of Japan who live in hope and kick the can down the road with endless QE and low rates.

Norway benchmark interest rate

The bank also noted that the rise in prices was observed broadly in multiple sectors of the economy, entailing that inflation will remain higher for longer than expected in earlier forecasts. Meanwhile, the rise in borrowing costs could cool the Norwegian housing market and curb household consumption faster than previously thought.

The Norwegian economy advanced a quarterly 0.7% in the second quarter, rebounding from the 0.9% contraction in Q1.

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