Norway’s Norges Bank Raised Rates 25bps to 4% and Guided Another Hike Likely in September

Norway’s central bank, the Norges Bank’s Monetary Policy and Financial Stability Committee unanimously raised the policy benchmark interest rate by Norges Bank hiked 25bps to 4% and guided that another hike was likely in September during its August meeting, bringing borrowing costs to the highest level since December 2008. The result saw the Norwegian crown rise from a six-week low against the dollar up 0.2% to 10.59, having fallen as low as 10.66 earlier. Against the euro it rose 0.3% to 11.51, after touching its lowest since July 10.

Norges bank did not refresh explicit forward guidance, but last meeting raised the projected terminal rate to 4.25% with guidance that the policy rate will be raised again at the August 17th decision., which it did.

Norway Norges Bank Headquarters Oslo

The bank had five consecutive hikes by December, equaling the sharpest hike since 2002.

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 indicated that it is likely to raise interest rates again if the krone remains weaker than expected or if there are persistent pressures in the economy.

Norway benchmark interest rate

The guidance also implied a more muted easing path over the forecast horizon stretching to 2026 as shown below. The result surprised markets and drove the 2-year yield up 16bps and the krone up by about 1½% to the dollar.

Future Rate Path

“The future policy rate path will depend on economic developments. If the economy evolves as currently anticipated, the policy rate will be raised further in September”, Norges Bank Governor Ida Wolden Bache said.

Policymakers assessed that a higher policy rate than signaled in June may be required to rein in inflation if krone proves to be weaker than previously projected. On the other hand, if there is a sharp slowdown in the economy or inflation decelerates rapidly, the policy rate may be lower than envisaged in June, the bank said.


Consumer price inflation remained high, despite some slowing, and well above the target. Core inflation also stayed elevated. “The Committee assesses that a somewhat higher policy rate is needed to bring inflation back to target,” the bank said.

The annual inflation rate in Norway slowed to 5.4% in July 2023 from 6.4% in the previous month and coming below market expectations of 5.7%. It was the lowest rate since April 2022.

Norway CPI Inflation Rate
  • Sharp slowdown in prices for housing & utilities (2.7% vs 4.7% in June) and food & non-alcoholic beverages (8.9% vs 13.4%). Additional downward pressures came from transport (4.3% vs 4.6%), alcoholic beverages & tobacco (5.4% vs 5.7%), and communications (7.5% vs 7.7%).
  • In contrast, costs accelerated primarily for furnishings, household equipment & maintenance (9.4% vs 8.8%), and recreation & culture (9.8% vs 9.1%).
  • CPI adjusted for tax changes and excluding energy products, eased to 6.4%, following a fresh-high of 7% recorded in June.
  • On a monthly basis, the CPI grew 0.4%, down from a 0.6% rise in the prior month.

Norges Bank Rate decision August 2023

Norges Bank’s Monetary Policy and Financial Stability Committee has unanimously decided to raise the policy rate by 0.25 percentage point to 4 percent.

Since the June 2023 Monetary Policy Report, overall economic developments have been broadly in line with expectations. Activity in the Norwegian economy remains high, and the labour market is tight. At the same time, the policy rate is having a tightening effect, and pressures in the economy are easing. Consumer price inflation has edged down but remains high and markedly above the target. Underlying inflation has remained elevated. The Committee assesses that a somewhat higher policy rate is needed to bring inflation back to target.

“The future policy rate path will depend on economic developments. If the economy evolves as currently anticipated, the policy rate will be raised further in September”, says Governor Ida Wolden Bache.

If the krone proves to be weaker than previously projected or pressures in the economy persist, a higher policy rate than signalled in June may be needed to bring down inflation. If there is a more pronounced slowdown in the Norwegian economy or inflation declines more rapidly, the policy rate may be lower than envisaged in June.

Rate effective from 18. August 2023:

  • Policy rate: 4.00 %
  • Overnight lending rate: 5.00 %
  • Reserve rate: 3.00 %

Norway Oil Fund

Norway’s $1.4tn wealth fund is the world’s largest sovereign wealth fund. It began in 1996 when 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

Norway’s oil fund owns on average 1.5 per cent of every listed company globally according to the FT.

Inflation and Fund Management

Inflation is identified as an issue at the oil fund, CEO Tangen, who warned that climate change will keep inflation high, said the fund was already using advanced algorithms to reduce trading costs and complexity and to boost internal productivity.

“The way we are putting money into the market, we are using AI models to predict when in the day, or over the month- or quarter-end we should deploy the capital. We are reducing trading activity because we are using AI models,” he said in an interview with FT.

“So, you can reduce the number of trades, and there are huge savings to be had there too,” he said, adding that: “It’s not like it’s on complete autopilot. We are monitoring it. It’s not like we’re the giving the fund to robots, and saying ‘hey, see you later’.”

Source: Norway, Sovereign wealth fund institute, FT

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

2022 and January 2023 Return Update

At the end of January 2022 Norway’s $1.3tn oil fund had recovered in the first month of 2023 after its worst year since the global financial crisis. The fund had an annual return last year of minus 14.1 per cent, or NKr1.6tn ($159bn). It came with the biggest fall in Norwegian kroner terms on record. The sovereign wealth fund gained 5 per cent in January 2023, chief executive Nicolai Tangen told a press conference.

“It’s potentially one of those moments,” he said, referring to the rebound in 2009 after the financial crisis, “but the outcome this year is more uncertain than normal”.

The fund has also reduced its positions in the troubled Adani group of companies, Tangen said. The fund had holdings as of Monday of about $200mn in Adani companies, compared with its weight in the fund’s index of about $800mn.

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.”

Equities had a negative return of 15.3 per cent, bonds lost 12.1 per cent while property eked out a 0.1 per cent gain.

Worse performers were technology companies with the worst performers of all the fund’s equity investments were Amazon, Meta, Tesla, Alphabet and Apple as a result of the sell-off in big tech companies that led the pandemic-era rally in 2020-21.

Best performers were energy companies, with ExxonMobil, Chevron, TotalEnergies and Shell plus drugmaker Novo Nordisk for the fund in 2022.

The aim is of the fund is diversification and that was shown with the fund as a whole not losing value in 2022 despite the large negative return as huge inflows from Norway’s oil and gas revenues, boosted by Russia’s war against Ukraine, stood at record levels. Norway’s petroleum revenues soared as the Scandinavian country displaced Russia as the biggest supplier of gas to the EU.

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