Norway becomes first European country to raise interest rates since financial crisis

Published 28th Oct 2009

Norway's central bank raised its key interest rate by a quarter percentage point to 1.5 per cent today, making the oil-rich country the first European economy to boost rates since the height of the global financial crisis.

Norges Bank said in a statement that its decision was due to a sharper-than-expected rise in inflation and lower unemployment.

Bank governor Svein Gjedrem said: 'The world economy is in a deep slump, but there are signs of new growth.

'The Norwegian economy has gotten moving again faster than anticipated.'

Norway, which has a population of 4.8million, is not a member of the European Union, and has escaped the financial crisis largely unscathed thanks to vast oil revenues, which it invests in a sovereign wealth fund worth $420billion.

Its unemployment rate of 2.7 percent is among the lowest in Europe, but the country's economy is still predicted to shrink one percent this year.

Financial analyst Ben May said the rate hike reflected the fact that Norway's huge oil surplus and fiscal policy had shielded the country from the worst of the global downturn.

'Accordingly, it is unlikely that other central banks in the region will follow suit and hike rates any time soon,' he said.

Since October 2008, the bank cut rates by a total of 4.5 percentage points due to the financial and economic crunch. Rates have held steady at 1.25 per cent since June.

The bank said it plans to keep interest rates between 1.25 and 2.25 until March 2010, 'unless the Norwegian economy is exposed to new major shocks.'

Source: ' Daily Mail '

View All Latest News