Norges Bank raises key policy rate to 5.25 per cent
Norges Bank’s Executive Board decided today to raise its key policy rate (sight deposit rate) by 0.25 percentage point to 5.25 per cent with effect from 13 December 2007.
– Inflation is low but rising, and this is why we are raising the key policy rate. Growth in the Norwegian economy has been stronger than expected. Demand for labour is rising rapidly, and household consumption has increased more than expected, says Governor Svein Gjedrem.
Since the beginning of November, the turbulence in money and credit markets has heightened and the outlook for the world economy has become more uncertain. House prices in Norway have fallen this autumn. Short-term money market rates are considerably higher than expectations concerning key rates would imply. These factors suggest that the key policy rate should be kept unchanged.
On the other hand, the Executive Board gave weight to faster-than-projected growth in the Norwegian economy. Demand for labour is rising rapidly. Household consumption has increased more rapidly than expected. Norges Bank’s regional network confirms the picture of continued solid growth in the economy. In addition, the Norwegian krone has depreciated somewhat against most currencies.
Consumer price inflation has picked up markedly as a result of a sharp increase in electricity prices, and is expected to show a further rise. In the October Monetary Policy Report, the rise in underlying consumer price inflation was expected to pick up gradually to around 2 per cent in the latter half of 2008.
- Keeping the key policy rate unchanged was considered as an alternative, but on balance the Board judges that it is now appropriate to raise the key policy rate. A higher interest rate may gradually reduce capacity utilisation, so that inflation will not become too high, says Governor Svein Gjedrem.
For more information, see "The Executive Board’s monetary policy decision - background and general assessment".
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