Norway Becomes First Country To Raise Interest Rates; England Holds Rates Steady

Norway has become the first major country to raise interest rates following the onset of the COVID-19 pandemic.

After cutting interest rates three times in 2020 due the economic fallout from the pandemic, Norway’s central bank has now decided to raise rates to 0.25% from zero previously.

The Norges Bank said that another interest rate hike is likely this December. Norway’s currency rallied to its highest levels since June against the Euro and gained 0.7% against the U.S. dollar on news of the rate increase.

The rate hike comes as many central banks consider similar moves amid solid growth and surging inflation. In the U.S., Federal Reserve officials reiterated that a tapering of bond buying is coming "soon." The European Central Bank recently slowed its bond buying, but an actual interest rate increase is expected to be still some way off for both banks.

At the same time as Norway announced its rate increase, the Bank of England announced that it is keeping its benchmark interest rate unchanged as it downgraded economic growth projections for the third quarter of this year.

The U.K.’s economic growth slowed unexpectedly in July and consumer price inflation saw its largest month-over-month increase since records began in January 1997.

The U.K.’s inflation reading prompted some Bank of England watchers to bring forward rate hike expectations to early next year, while economists at Bank of America believe the central bank could be pressured into a rate increase as soon as February 2022 if inflation pressure persists.

The Pound Sterling traded up 0.4% at $1.3676 shortly after the central bank’s rate decision was made public, paring losses from earlier this week.