Norway's central bank raised its benchmark interest rate by 25 basis points (bps) to 3% today to rein in inflation and said it would likely raise it again in May and also after that to hit 3.5% this summer.
Of the 26 economists polled earlier, 25 had anticipated an increase of 25 bps while one had bet on an increase of 50 bps. The poll had predicted that rates would peak at 3.25%.
"There is considerable uncertainty about future economic developments, but if developments turn out as we now expect, the policy rate will be raised further in May," Norges Bank Governor Ida Wolden Bache said in a statement.
"The policy rate forecast has been revised up from the December Monetary Policy Report and indicates a rise in the policy rate to around 3.5% in summer," Norges bank said.
Nordea Markets said Norges Bank was now expected to hike in May and June and possibly also in September.
"The central bank decision for higher rates is mainly due to the weak (crown) and better economic development," Nordea said.
Norges Bank now expects that mainland GDP, a key measure that strips out changes stemming from oil and gas production, will rise by 1.1% this year compared to a December forecast of a 0.2% contraction.
"A higher policy rate is needed to curb inflation," Norges Bank said.
Norway's core inflation, which excludes energy costs, stood at 5.9% in February, in line with the central bank's December forecast and down from a peak of 6.4% in January, with a price war among supermarkets easing some of the pressure.
The crown has weakened by around 8% this year on a trade-weighted basis compared with Norges Bank's assumptions made in December, fuelling inflation.
"If the (crown) proves weaker than projected, or pressures in the economy persist, a higher policy rate than currently projected may be needed to bring inflation down to target," the central bank said.
"If inflation falls faster or unemployment rises more than projected, the policy rate may be lower than projected," it added.
