The Accelerating Tightening Clock... Norway "Possible Interest Rate Hike Within Weeks"

Oystein Olsen, Governor of the Central Bank of Norway
[Photo by Reuters Yonhap News]

[Asia Economy Reporter Park Byung-hee] As the Federal Reserve (Fed), the central bank of the United States, moves closer to tapering (reducing asset purchases) within this year, signs are emerging that the tightening clocks of central banks around the world will also accelerate. Since the US, the key currency country, is highly likely to embark on a tightening path in earnest, other countries increasingly need to keep pace.

First, the Norwegian central bank is expected to raise its benchmark interest rate at the September monetary policy meeting.

According to Bloomberg on the 19th (local time), the Norwegian central bank kept the benchmark interest rate at 0% at the monetary policy meeting that day. However, it strongly hinted at the possibility of a rate hike in September, stating that the situation is progressing where it could start raising the benchmark interest rate within weeks. Norway's next monetary policy meeting is scheduled for the 23rd of next month.

Senior economist Shure Amdal of DNB Bank, Norway's largest bank, said, "There was no signal that the central bank would be cautious about (raising the benchmark interest rate)," and "The central bank is expected to raise the benchmark interest rate to 0.25% in September and then further increase it to 0.5% in December." The Norwegian central bank lowered the benchmark interest rate from 1.5% at the beginning of last year to 0% after the COVID-19 pandemic.

New Zealand is also certain to raise its benchmark interest rate within this year. New Zealand was initially expected to raise the benchmark interest rate at the monetary policy meeting on the 18th, but postponed the hike due to a sudden increase in COVID-19 cases. New Zealand ended its quantitative easing policy earlier in July. Australia plans to start tapering from October.

Many emerging countries have already raised their benchmark interest rates. The dollar has strengthened amid expectations of US tightening, increasing inflationary pressures. Brazil has raised its benchmark interest rate four times this year alone. Brazil's benchmark interest rate, which was 2% at the beginning of the year, is currently 5.25%. Mexico also raised its benchmark interest rate from 4% to 4.25% in June and further increased it to 4.5% at the monetary policy meeting on the 12th.