FX.co ★ Norges Bank Hikes Policy Rate Unexpectedly

Norway's central bank raised its key interest rate at its December meeting as the economy is facing high inflation, and the policy board stated that the rate will likely be kept at that level for some time ahead.

The Monetary Policy and Financial Stability Committee, headed by Governor Ida Bache, decided to raise the policy rate from 4.25 percent to 4.50 percent, Norges Bank said in a statement on Thursday.

The previous change in the rate was a 0.25 percent hike in?September.

"We see that the?economy?is cooling down, but inflation is still too high," Wolden Bache said.

A rate hike now reduces the risk of inflation remaining high for a long period of time, the Norges Bank chief said.

Recent data showed that Norway's consumer price inflation rose to a three-month high of 4.8 percent in November from 4.0 percent in October.

The bank observed that the krone depreciation makes it more challenging to bring down inflation.

An increase in the policy rate now will reduce the risk of inflation remaining high for a long period of time, the bank said.

The committee assessed that a tight monetary policy stance will likely be needed for some time ahead in order to return inflation to target within a reasonable time horizon.