OSLO (Reuters) -Norway’s central bank raised its benchmark interest rate on Thursday as expected, and said more hikes will follow as it joins a short but growing list of nations moving away from emergency-level borrowing costs.

FILE PHOTO: A general view of the Norwegian central bank, where Norway’s sovereign wealth fund is situated, in Oslo, Norway, March 6, 2018. REUTERS/Gwladys Fouche/File Photo

Norges Bank’s monetary policy committee raised the sight deposit rate to 0.25% from a record low of zero, as forecast unanimously here in a Reuters poll of analysts and in line with the central bank’s own plan here.

“Based on the committee’s current assessment of the outlook and balance of risks, the policy rate will most likely be raised further in December,” Norges Bank Governor Oeystein Olsen said in a statement.

The monetary policy committee said its forecast for four more hikes by the end of 2022, to a rate of 1.25%, had become even more likely.

Norway’s currency, the crown, strengthened to 10.0793 against the euro at 0831 GMT from 10.1031 just before the announcement.

The central bank cut rates three times in 2020 to combat the impact of the COVID-19 pandemic, contributing to a boom in housing prices as borrowers took advantage of cheap credit.

The government in recent months removed most lockdown restrictions however and unemployment has fallen more than expected, while the central bank’s own business survey showed a rise in activity here and pointed to growing capacity constraints.

Norges Bank’s announcement represented “yet another hawkish tilt” on monetary policy, Nordea Markets said in a note to clients.

While a recent rise in electricity prices could reduce households’ disposable income, Norway’s high savings rate would likely take much of the sting out of rising power bills, Norges Bank added.

Many of the world’s central banks are now laying the groundwork for a transition to life with less stimulus, and some developed economies have already raised rates, such as the Czech Republic here, South Korea here and Iceland.

In the United States, the Federal Reserve on Wednesday said it will likely begin reducing its monthly bond purchases as soon as November here and signalled interest rate increases may follow more quickly than expected.

In contrast, the Swiss National Bank earlier on Thursday signalled monetary policy would stay ultra-loose for the foreseeable future, while Sweden on Tuesday forecast that its rates could be on hold here for years to come.

The Bank of England is scheduled to give a policy update on Thursday as well, with analysts all expecting no change in rates here.

“I think it’s perfectly reasonable (to hike interest rates) because the Norwegian economy is recovering strongly,” said Kjersti Haugland, chief economist at DNB Markets.

“It’s more about the long-term picture, how strong the economic growth and utilisation will be in a year-and-a-half from now.”

“If energy prices are extremely high this winter, Norges Bank would probably have to delay the pace (in rising interest rates) a little bit, but that’s the worst case scenario.”

Having contracted by 2.5% in 2020, the Norwegian economy is now expected to grow 3.9% in 2021, the bank said, more than the 3.8% it predicted three months ago, and will likely see expand 4.5% next year, stronger than its previous forecast of 4.1%.

Norges Bank also said it would force banks to hold more supplementary buffer capital, 2.0% of its balance sheet instead of 1.5%, boosting the system’s solidity while making less capital available for lending.

Over time, the demand will be raised to 2.5%, it added. Responsibility for setting the so-called countercyclical bank buffers was delegated earlier this month from the finance ministry, which set the policy until now.

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