Norway’s central bank has increased its benchmark interest rate by 0.25 percentage points to 4.25 per cent, becoming the first European central bank to raise rates since the outbreak of the Middle East conflict.
In a statement issued on Thursday, Norges Bank said the decision was driven by persistent inflationary pressures and growing uncertainty surrounding the global economy.
Governor Ida Wolden Bache said inflation in the country remained above target despite previous tightening measures.
“Inflation is too high and has run above target for several years,” Bache stated.
According to the central bank, underlying inflation , its preferred measure for assessing price growth stood at 3.0 per cent in March, significantly above Norway’s official inflation target of around two per cent.
Norges Bank also warned that developments linked to the ongoing Middle East crisis could place further upward pressure on prices, particularly through rising energy costs.
“The increase in oil and gas prices due to the war in the Middle East could push up inflation further,” the bank noted.
Global oil prices surged after the United States and Israel launched strikes against Iran on February 28, leading to tensions around the Strait of Hormuz, a critical global energy shipping route.
However, oil prices have eased in recent days following renewed optimism over possible peace negotiations, with Brent crude falling below the $100-per-barrel mark.
Meanwhile, neighbouring Sweden opted to keep its interest rate unchanged at 1.75 per cent.
The Riksbank said there was still room to wait for clearer economic signals before making further monetary policy adjustments.
The Swedish central bank noted that the full impact of the Middle East conflict and related supply disruptions on the global economy remained uncertain.
