MNI NORGES WATCH: On Hold In March,Tilt To Earlier Cut Eyed

Norges Bank looks near certain to keep its key policy rate on hold at 4.5% at its March meeting with market focus on whether it shifts guidance to signal an increased chance of a cut before the autumn.

The policy decision to be announced on Thursday will be accompanied by fresh forecasts and analysts will look for any changes to the previous in-house rate projection showing a first cut between the September and December meetings. The krone has strengthened markedly since the last forecast round and inflation on the target measure has fallen faster than anticipated but unless the guidance is changed the June cut that some analysts predict would seem less likely.

When Norges Bank’s Monetary and Financial Stability Committee raised the policy rate from 4.25% to 4.5% at its December meeting Governor Ida Wolden Bache cited krone weakness as one justifying factor. On March 15 the I-44 trade-weighted krone index, for which a lower reading marks an appreciation, was 119.48, 0.8% above the level that ahead of January’s unchanged policy announcement, though 3.1% below the level on the day before December's decision.

STRONGER KRONE

The stronger-than-projected krone since the last forecast round may feed through to a somewhat lower inflation profile in the updated projections, although the picture is clouded by the fact that the central bank has previously varied how much it expects exchange rate moves to pass through to inflation. Wolden Bache will have the opportunity to explicitly open the door to an earlier rate cut in the policy statement and at her subsequent press conference, although with unemployment low by international standards, pay growth robust and interest rate differentials supportive of a firmer krone, she may feel little pressure to shift stance.

Recent economic data have tended to be a little firmer than the central bank's view of slow growth although expected pay growth is roughly in line with its forecast.

Norges Bank predicted 0.8% GDP growth in 2024 but -0.3% on the quarter in Q1 while its recently-published business survey, the Regional Network report, found respondents expected activity to remain almost unchanged in the first half of the year. Predictions for annual wage growth this year were revised up to 4.9% from 4.5%, almost matching the central bank's 5.0% forecast.

The target CPI-ATE core inflation measure was up 4.9% in February on the year, markedly below the 5.5% forecast by the Bank.

Analysts' views on the timing of the first rate hike are dispersed, ranging from June to end year, though they are united in expecting no change in policy this month.