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Norway Central Bank Hikes Policy Rate By 50 Bps, Hints At September Raise

The Norwegian central bank raised its benchmark interest rate further by 50 basis points in its August meeting, as widely expected, and policymakers hinted that there will be another rate hike in September in order to curtail soaring inflation.

The Monetary Policy and Financial Stability Committee unanimously decided to raise the policy rate from 1.25 percent to 1.75 percent, Norges Bank said in a statement.

The previous change in the rate was a similar hike in June.

"Based on the Committee's current assessment of the outlook and balance of risks, the policy rate will most likely be raised further in September," Norges Bank Governor Ida Bache said.

According to the recent results, consumer price inflation rose to 6.8 percent in July from 6.3 percent in June, which was the highest rate since July 1988.

Further, recent inflation has been considerably higher than projected and markedly above the bank's 2 percent target.

The bank assessed that the current faster interest rate hike will reduce the risk of high inflation and the need for sharper tightening of monetary policy in the future.

Looking ahead, the bank is concerned about the little spare capacity in the economy and persistent global price pressures will lead to a further acceleration in price inflation.

However, the rise in interest rates and high inflation may cool down the housing market and curb household consumption faster than currently envisaged, the bank said.

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