Norwegian central bank raises interest rate by 0.5%

Norway's central bank, Norges Bank, has decided to raise the policy interest rate by 0.5 percentage points to 3.75 per cent following markedly high inflation in the Nordic nation.

"(Norges Bank's Monetary Policy and Financial Stability Committee) judges that a higher policy rate than previously signaled is needed to bring inflation down to target," the bank said in a statement.

"Inflation has been markedly higher than projected in the March Report. International interest rates have risen more than anticipated. Higher wage growth and a weaker (Norwegian) krone than projected earlier will push up inflation ahead," read the statement.

In Norway, prices have increased for a range of goods and services, reports Xinhua news agency. According to the statement, the 12-month rise in the consumer price index (CPI) was 6.7 per cent in May, which was much higher than expected.

"If we do not raise the policy rate, prices and wages could continue to rise rapidly and inflation become entrenched. It may then become more costly to bring inflation down again," Governor of Norges Bank Ida Wolden Bache said.

The central bank also suggested further hikes of policy rates. "The policy rate forecast has been revised up since the March Report and indicates a rise in the policy rate to 4.25 per cent in the course of autumn," the statement said.

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