Stockholm (People’s Daily) - Norway's key policy interest rate will increase to 2.5 percent, Norway's central bank, Norges Bank, announced on Thursday.

File photo: Agencies

Norway's central bank decided to hike the key policy rate by 0.25 percentage points to 2.5 percent on Thursday and said another raise was probably coming in December.

The bank's governor, Ida Wolden Bache, said that high economic activity and inflation were behind the decision to increase the key policy rate for the sixth time since September last year.

"There is high activity in the Norwegian economy, and unemployment is at a historically low level. Price inflation has risen further and is clearly above our target of 2 percent. We raise the interest rate to curb price inflation," she stated when the bank announced the rate hike.

In the coming weeks, one of the main knock-on effects consumers will feel is increased loan and mortgage payments. In the days after the key policy rate is raised, commercial banks announce that their rates for customers will also go up.

Consumer organization Huseierne told Norwegian newswire NTB that the rate hike meant that yearly repayments on a mortgage of 2 million kroner ($1.9 million) have increased by 39,000 kroner annually since last September.

Bache said the bank was trying to maintain a balancing act between ensuring the economy doesn't overheat and making sure consumers aren't squeezed too hard.

"We have striven for a balance. If we set interest rates too high, we can slow down the economy too much. We don't want that," she said.

In addition, she added that she believed most households would be able to cope with the increased rate.

"Many households have tighter finances. Higher interest rates mean higher borrowing costs for those who have debt. And purchasing power is also weakened by the high price increase," Bache said, adding, "But most Norwegian households have the finances to handle increased expenses."