The Organisation for Economic Cooperation and Development has declared that policy interest rates in Norway will need to be raised in order to keep inflation under control, while over-budget spending will also need to be reined in.

“With the economic recovery becoming self-sustained and labour-market slack diminishing, policy interest rates will need to raise further to keep inflation pressures under control,” said the OECD in its latest economic report.

One of the first western banking institutes to raise interest rates since the economic crisis began, Norway’s central bank upped the cost of borrowing by 25 basis points on 5th May to a level of two percent. The bank also suggested that the slow economic recovery would continue, but that fears in the euro zone of wider debt blowouts have muddied the Norwegian outlook.

According to Interactive Investor, the non-oil GDP for Norway grew by just 0.1 percent in the first quarter of 2010, as a drop off in investments created uncertainty over the next rate rise. Analysts predicted no such move until early 2011.

The OECD stressed that Norwegian spending would need to be reduced to fund the underlying budget deficit, with the huge surpluses from oil and gas activities the main targets. Presently, much of the oil revenue fund is siphoned to offshore accounts to protect the economy from overheating.

“The fiscal stimulus should be moderated soon as well, in line with the policy of fully saving petroleum wealth for future generations,” the OECD said. “By 2011, mainland GDP will be growing sufficiently fast to eliminate excess capacity in much of the economy.”

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