Norway hikes interest rate

NORWAY yesterday became the first Western European country since the onset of the financial crisis to raise the cost of borrowing, hiking interest rates to 1.5 per cent to control inflationary pressures in the oil-exporting country.<br /><br />&ldquo;Inflation has been higher than expected and unemployment is considerably lower than previously projected,&rdquo; the Norges Bank governor, Svein Gjedrem, said in a statement.<br /><br />He said that economic activity had picked up more rapidly than expected, meaning the key rate should be raised somewhat more rapidly than forecast.<br /><br />The key rate will average 4.25 percent in 2012, compared with a June forecast for 3.75 percent. <br /><br />Norway had been widely tipped by market observers to be the next country in the world to raise interest rates thanks to its oil surplus and prudent fiscal policy, which have sheltered the Scandinavian economy from the worst of the economic crisis. <br /><br />Separately, the Reserve Bank of New Zealand, which had also been a contender to raise rates, decided to hold its rates at a record low of 2.5 per cent, and said it did not expect to start raising it until the second half of next year. <br /><br />On 6 October, the Reserve Bank of Australia became the first G20 country to raise interest rates.