By Victoria Klesty
OSLO (Reuters) - Norway's central bank raised its benchmark interest rate by 25 basis points to a 13-year high of 2.75% on Thursday, as expected by economists, and said it will "most likely" hike again in the first quarter of 2023 as inflation remains above its target.
Of the 24 analysts polled by Reuters ahead of Thursday's meeting, all but one had anticipated a quarter-point rise, while one had bet on an unchanged rate.
Graphic: Smaller hike delivered https://www.reuters.com/graphics/NORWAY-ECONOMY/RATES/znpnbbxdjpl/chart.png
"Our forecasts indicate a policy rate of around 3% next year," Norges Bank Governor Ida Wolden Bache told Reuters following the announcement.
"There is high uncertainty regarding the economic development going forward, and the rate could be both higher and lower than that," Bache said of the 3% forecast.
The Norwegian currency, the crown, strengthened to 10.37 against the euro at 1137 GMT from 10.44 just before the rate announcement.
The U.S. Federal Reserve on Wednesday raised its key policy rate by 50 basis points as expected and said it will deliver more interest rate hikes next year even as the economy slips towards a possible recession.
If Norway were to raise rates considerably less than other countries, it could negatively affect the currency, Bache told Reuters.
"If the crown weakens, that could contribute to an increase in the prices of our imports and mean that the inflation outlook here in Norway increases," she said.
Graphic: Race to hike rates https://www.reuters.com/graphics/NORWAY-ECONOMY/RATES/jnvwyyagkvw/chart.png
Norway's core inflation has outpaced the central bank's most recent forecasts, hitting 5.9% in October year-on-year and slowing somewhat to 5.7% in November while the bank had projected 5% for each of the two months.
Norges Bank, which targets core inflation of 2% over time, on Thursday raised its 2023 core inflation forecast to 5.2% from 4.8% seen in September.
"The new rate path was more hawkish than we expected and signals at least one more rate hike and 50% (probability) for a rate top at 3.25%," Nordea Markets said in a note to clients.
The Norwegian mainland economy is now expected to grow by 3.6% in 2022, Norges Bank said, more than the 2.8% it predicted three months ago, and will likely contract by 0.1% next year compared to a previous forecast of a 0.3% drop.