COPENHAGEN, Denmark (AP) -- Norway's central bank raised its key policy interest rate by half a percentage point Thursday, saying "inflation has been considerably higher than projected."
The rate's increase to 1.75% was larger than expected as the bank takes aim at inflation that reached 6.8% in July. It noted that unemployment is very low, falling more than expected last month to 3.2%, and "activity in the Norwegian economy is high."
"The rise in prices has been broad-based in recent months and may entail that inflation will remain high for longer than expected earlier," Norges Bank said in a statement. "A faster rate rise now will reduce the risk of inflation becoming entrenched at a high level and the need for a sharper tightening of monetary policy further out."
It comes as central banks around the world are making big rate increases to tackle decades-high inflation. The U.S. Federal Reserve, Bank of England and European Central Bank have all carried out hikes of a half-point or larger in recent weeks as they look to cool down the economy without tipping it into recession.
The central bank in Norway, which is not a member of the European Union, noted that "persistent global price pressures will lead to a further acceleration in price inflation."
"On the other hand, the rise in interest rates and high inflation may cool down the housing market and curb household consumption faster than currently envisaged," the bank said. "There is also a risk of a sharper slowdown in global growth."
Based on the outlook and balance of risks, the bank said it will likely raise the policy rate further in September.