Norges Bank decided to increase the key rate by 50 bps to 3.75%. The Krone strengthened on the publication of the decision, with EUR/NOK falling from 11.70 to 11.57, economists at Nordea report.

A very high probability for a rate top at 4.25% by September

Norges Bank decided to up the ante and increase the key rate by 50 bps from 3.25% to 3.75%. The central bank now signals a high probability for a peak rate at 4.25%.

The decision is justified given that inflation has come in markedly higher than anticipated. A weaker NOK and higher wage growth than expected worsen the inflation outlook further ahead. The weak NOK also contributes to sustaining the pressure on the Norwegian economy. As such, by frontloading rate hikes, Norges Bank reduces the probability for an even higher rate top down the road.