OSLO, May 7 (Xinhua) -- Norway's central bank announced Thursday that it had raised its policy rate by 0.25 percentage point to 4.25 percent, citing persistent inflation, marked wage growth in recent years and higher global energy and commodity prices.
Norges Bank said its Monetary and Financial Stability Committee had made the decision as inflation remains above the central bank's target of close to 2 percent over time.
According to the bank, consumer price inflation recently stood at 3.6 percent. Excluding energy prices, which can fluctuate widely from month to month, inflation has been around 3 percent over the past year and a half.
Inflation "is too high and has run above target for several years," Norges Bank Governor Ida Wolden Bache said at a press conference following the announcement.
Bache said prices for domestically produced goods have been rising the fastest, while recent data indicate that domestic inflation may remain elevated for longer than the central bank had expected at the beginning of the year.
An important reason behind the persistent inflation is the marked wage growth in recent years which has increased firms' costs and contributed to keeping price growth high, said the governor.
Global price pressures have also intensified, she added. Oil prices rose sharply after the United States and Israel attacked Iran at the end of February and have remained high. Prices for other commodities, including aluminum and fertilizers, have also increased due to the war in the Middle East.
Norges Bank said these price increases can spill over into domestic prices, with higher energy prices directly affecting households through petrol and diesel costs and indirectly through higher costs for airlines and other businesses, which may be passed on to consumers.
The central bank said raising the policy rate would help bring down inflation and preserve confidence in the inflation target. Failure to respond systematically to prospects of high inflation could weaken confidence in the target and lead to a marked depreciation of the Norwegian krone, making it more costly to restore price stability later, it added.
The central bank's March forecast indicated that the policy rate could rise to between 4.25 percent and 4.5 percent by the end of the year, suggesting that further tightening may be needed later in 2026.
Norges Bank did not present new forecasts on Thursday, but said the monetary policy outlook had not changed materially since March.
It added that the war in the Middle East continues to create substantial uncertainty about the economic outlook, and that the future policy rate path may differ if the economy develops differently from current projections. ■