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Norges Bank Unexpectedly Raises Key Interest Rate

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Norway's central bank raised its key interest rate in September, while it was expected to leave it unchanged after policymakers pointed to growing uncertainty in August due to the worsening global risk outlook.

After the Executive Board of the Norges Bank raised the key interest rate by 25 basis points to 1.50 percent on Thursday, the bank signaled that there are unlikely to be more hikes in the near future.

"The Executive Board's current assessment of the outlook and balance of risks suggests that the policy rate will most likely remain at this level in the coming period," Norges Bank Governor Oystein Olsen said.

A higher policy rate may will mitigate the risk of a renewed acceleration in debt growth and house price inflation, the bank said.

However, foreign interest rates are very low, and there is considerable uncertainty surrounding global growth prospects, warranting a cautious approach to interest rate setting, the bank added.

"The policy rate forecast indicates a slightly smaller rate rise than in the June [Monetary Policy] Report," Norges Bank said.

The central bank attributed the downward revision in the rate path to weaker growth prospects, lower interest rates abroad, lower inflation, and slightly less tight labor market.

On the other hand, a weaker-than-expected krone is exerting upward pressure on the policy path.

The bank expects inflation to remain close to the target in the years ahead and unemployment to remain low.

ING economist James Smith said the interest rate is likely to remain at 1.5 percent for the rest of this year.

However, if US and China agreed a trade deal in the first half of 2020 and the UK avoids a 'no-deal' Brexit, there is a reasonable chance that the Norges Bank will hike rates again next year, possibly in the second quarter, the economist added.

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