MNI NORGES BANK WATCH: 25bps Hike Seen, Tilt Against Cuts Soon

Norges Bank is expected to deliver this week on the 25-basis point hike that it signalled last month, lifting the policy rate to 4.25%, with its central rate path likely to suggest that that is likely to be the cycle peak.

But while the Norwegian central bank, like many of its advanced economy peers, looks close to the end of the tightening cycle, policymakers will be wary of sending a strong signal that rates are going to head back down any time soon and they will want to leave the door open to further tightening if needs be.

The Bank will publish a new set of quarterly forecasts alongside its policy decision on Thursday. The previous forecasts, in the June Monetary Policy Report, showed the policy rate holding at 4.2% until the third quarter of next year before beginning a steady descent and dropping to 2.9% by Q4 2026.

In August Governor Ida Wolden Bache declared that if things evolved as anticipated “the policy rate will be raised further in September”, and the data since June do not appear to have been discordant enough to either derail the assumption of a hike this month or to really shake up the central bank’s forecasts further down the line.

FIRMS EXPECT LOWER GROWTH

In June Norges Bank forecast that inflation on its target CPI-ATE measure would be 6.5% in August, and it came in at 6.3%, with CPI at 4.8%. The central bank projected it staying above its 2.0% target throughout its three-year forecast, reaching 2.4% in 2026.

The central bank’s Regional Network Report published this month found that firms expected growth to slow in the fourth quarter, though wage growth was seen remaining high, at 5.4% this year and 4.6% next, and unemployment staying low as firms hoarded labour to avoid facing recruitment difficulties. The resurgent oil price has fed through to greater optimism in Norway’s extensive energy sector, with oil firms anticipating the highest sectoral wage rises, of 5.1%, next year.

That mix of still-resilient activity and inflation data not far out of whack with the Bank’s forecasts points to an economy evolving broadly as anticipated without sufficient weakness to justify any rapid rate reversals.

The challenge for Wolden Bache will be to deliver guidance that may stop short of stating that another hike is likely, while highlighting readiness to act should inflation prove stickier than expected.