MercoPress. South Atlantic News Agency

Norway first in Europe to raise interest rates

Increase in oil revenues has helped the Norwegian economy pick up

Norway has become the first European country to raise its interest rates since the beginning of the global financial crisis. The country's central bank raised the cost of borrowing to 1.5% from 1.25% in a widely-expected move.

It said the increase was needed because inflation was higher than expected and unemployment was “considerably lower than previously projected”.

Earlier this month, Australia raised its interest rate to 3.25% from 3%.

The move made Australia the first country in the G20 to increase rates since the global economic crisis.

Norwegian central bank governor Svein Gjedrem said: “Activity in the Norwegian economy has picked up more rapidly than expected. Developments indicate that it is appropriate to raise the key policy rate now”.

He added that rates would continue to rise “gradually”.

Gjedrem said the target is that next March, when a monetary policy review is scheduled, interest rates should be oscillating between 1.25% and 1.75%. Analysts are forecasting the next increase will take place in February.

Norway has seen its real estate sector recover dynamism and the unemployment rate is only 3%. A strong increase in revenue from oil exports is helping the economy.

Countries across the world have lowered interest rates over the past year to cut the cost of borrowing in at attempt to stimulate economic growth.

Norway is the third country world-wide in increasing interest rates behind Australia and Israel.