Breadth divergence is a troubling sign for the stock market

By Dominic Chopping

Norway’s central bank raised its key policy rate to 1.75% from 1.25% on Thursday, and said it expects to raise the rate further in September.

Analysts polled by The Wall Street Journal had expected the central bank to raise its key rate to 1.75%, despite guidance from the central bank at its last meeting in June suggesting it would hike to 1.50%.

No new forecasts were compiled in conjunction with Thursday’s meeting, but Norges Bank said in June that it expects the policy rate to rise to around 3% in the period to summer 2023.

The central bank said inflation has been considerably higher than projected and markedly above the two percent target, so a markedly higher policy rate is needed to ease economic pressures and bring inflation down towards target.

The rise in prices has been broad-based in recent months and may see inflation remain high for longer than expected, which suggests a faster rise in the policy rate than forecast in June, the central bank said.

A faster rate rise now will reduce the risk of inflation becoming entrenched at a high level and the need for sharper tightening further out, it added.

Write to Dominic Chopping at [email protected]

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