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MNI NORGES WATCH: Data Seal June Hike Of At Least 25BP
Norges Bank is set to tighten policy this week as previously flagged, with strong labour market fueling speculation over whether it could shift to a 50-basis-point increase to bolster the currency and push back against wage-price dynamics.
The committee for monetary policy and financial stability hiked the policy rate in May by 25 basis points to 3.25% and said it would "most likely be raised further in June" with Governor Ida Wolden Bache telling MNI that "we cannot exclude the possibility of larger hikes if the outlook indicates that that is necessary. (See MNI INTERVIEW: Norges Could Move To Larger Hikes - Governor)
The central bank's own business survey, its Regional Network Report, published this month highlighted upward price pressures from the labour market.
Respondents expected annual wage growth of 5.4% in 2023, dipping to 4.5% in 2024, with a mix of low unemployment and upward price pressures cited as factors behind higher-than-previously-anticipated pay growth.
PAY PRESSURES
In addition to the upward price pressures fueling pay is one that will trouble policymakers, Wolden Bache has cited krone weakness as a factor that could prompt further tightening.
Norges Bank's March Monetary Policy Report, its last full forecast round, showed a rate peak of 3.6%, suggesting only one more hike may be needed but the June projections look set to raise this, with a peak close to 4.0% seen as the most plausible projection by some analysts.
Even if the committee only hikes 25 bps this time, it would leave space for two more 25bp hikes which it could indicate being done before the end of the year.
With the Norges Bank particularly transparent over policy setting, publishing its own rate projection and carefully delineating what in its rate path is model based and what is judgement, hiking by 50bp rather than 25bp may provide little in the way of additional signaling over its commitment to tackling inflation and it is unsurprising analysts are divided over the outcome.
In order to deliver a substantial hawkish surprise the central bank would need to both hike in a larger step and publish a higher-than-expected rate path.
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.