Norway has become the first Western country whose central bank has raised interest rates since the start of the COVID-19 pandemic.
What Happened:The Monetary Policy and Financial Stability Committee of Norges Bank voted unanimously to raise the policy rate from 0% to 0.25%. The central bank cited Norwegian economic activity was now above its pre-pandemic level while unemployment continues to fall and a successful COVID-19 vaccination rollout has reduced the need for pandemic protocol restrictions.
“A normalizing economy now suggests that it is appropriate to begin a gradual normalization of the policy rate,” said Norges Bank Governor Øystein Olsen.
Olsen added the rate “will most likely be raised further in December” if current conditions continue to improve.
What Else Happened:The Norwegian decision follows actions by the central banks in Brazil, Chile, Mexico, Peru, Russia and South Korea to initiate rate hikes this year.
In the U.S., Federal Reserve Chairman Jerome Powell stated the central bank could begin scaling back asset purchases in November, but this long-awaited tapering would not be accompanied by a rate hike.
“The timing and pace of the coming reduction in asset purchases will not be intended to carry a direct signal regarding the timing of interest-rate liftoff,” he said yesterday after two-day meeting of the Federal Open Market Committee.