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MNI Norges Bank Preview - March 2023: 25bps Base Case, Further Tightening Hints Likely

Executive Summary:

  • Bank expected to raise rates by 25bps, inline with the guidance handed down in January
  • Fresh path projections likely to point to higher peak rate in Q3
  • Global banking turmoil should curtail impulse to hike 50bps, despite high CPI
Full preview including summary of sell-side views here:

MNINBPrevMar23.pdf

Meeting their forward guidance made in January, the Norges Bank are likely to undergo another single hike in March, lifting the deposit rate to 3.00%. It’s likely that absent March’s global banking turmoil, the Bank would have more seriously considered a double hike of 50bps after Q1’s hotter-than-expected inflation, but uncertainty surrounding the state of financial stability should curtail this impulse for now. Nonetheless, the bank cannot yet eliminate the need for further tightening this cycle.

Figure 1: Q1 inflation topped the Bank’s Dec forecast

Pressure has been building on the bank since the January inflation release, which saw the committee’s favoured inflation measure, underlying CPI-ATE, convincingly top forecast. While the hot January release was followed by a reversion lower in February, Q1 inflation still underlines the need for tighter policy at this juncture. A 25bps hike would be consistent with the bank’s return to the gradualist approach to rate-setting outlined last year, and any guidance that rates could rise further going forward will see the June and September policy meetings come into focus.

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