At its September 21 meeting, the Norges Bank’s Executive Board voted unanimously to increase the demand deposit rate by another 50 basis points, to 2.25% – the highest level since November 2011. The increase followed 50 basis points in August. High and priced by the markets.
The decision was prompted by accelerating inflation, which moved above Norge’s 2.0% target in August and consistently exceeded expectations. The bank added that it now expects inflation to remain high for a longer period than forecast at its last meeting in August. The Bank of Norway stated that a rapid increase in interest rates, along with higher inflation, will put pressure on consumers’ finances, but that higher rates are necessary to reduce the risk of higher inflation. However, the bank acknowledged there are indications that the economy is slowing, which will ease inflation going forward.
Regarding future directions, Norges Bank stated that early signs of the intended impact of policy tightening were observed. As such, the bank has hinted that it will now increase the rate in a gradual manner. The Norges Bank sees the rate hike as 3.00% “during the winter” and has hinted at another rate hike at the upcoming MPC meeting, scheduled for November 3.
FocusEconomics Consensus forecast committee members forecast the demand deposit rate for the end of 2022 at 2.40% and 2023 at 2.91%.