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MNI NORGES WATCH: 25bp Hike And At Least Two More To Come

(MNI) London

Norges Bank delivered a well-trailed 25-basis-point hike at its March meeting and signalled that it was likely to make at least two more rate increases of the same magnitude in this cycle.

The Monetary Policy and Financial Stability Committee lifted the policy rate to 3.0% and stated that the next hike would be in May if things developed as expected while the collective rate projection showed the policy rate rising to around 3.5% in the summer and 3.6% by the end of this year, leaving the door open to a third hike if need be. This profile was well above the previous quarterly forecast, which only partly factored in one more 25bps hike after this month's. with the previous peak at 3.11%.

A combination of a weak krone and a tight labour market were key factors behind the case for higher rates, with the committee seeing signs of persistent upward pressure on core inflation. Economic activity was expected to be stronger than previously thought with higher anticipated growth in export markets and higher policy rates abroad.


While the latest reading for the target inflation measure, CPI-ATE, was in line with previous assumptions, the central bank was concerned that higher services prices, driven in part by a tight labour market, “have become an increasingly prominent driver of inflation."

The projections in the quarterly Monetary Policy Report showed inflation remaining above the 2% target throughout the forecast period.

CPI-ATE this year compared to last was forecast at 5.6%, up 0.4 percentage point from the previous quarterly forecast and at 3.8% in 2024 and 2.9% in 2024, both 0.2 point higher than previously. The GDP growth forecast was raised by 0.8 percentage point to 1.4% for this year and mainland, essentially non-oil and gas, GDP was raised by 1.3 percentage points to 1.1%.

Norges Bank even suggested that the long-term, equilibrium, interest rate level was assumed to be higher than previously thought, with the Monetary Policy Report. The Norwegian central bank was at the front of the pack in starting to raise interest rates but now finds itself unable to bring the tightening cycle to a close.

MNI London Bureau | +44 203-586-2223 |
MNI London Bureau | +44 203-586-2223 |

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