MNI NORGES WATCH: March Hike, Possibly Higher Rate Path
Norges Bank looks set to deliver a well-trailed 25bp hike at its March meeting and is likely to nudge up its rate path.
Norges Bank looks set to announce a 25-basis-point hike in its policy rate to 3% in line with its signalling on Thursday, and could nudge its projected rate peak higher as inflation remains above target.
While more or less in line with the central bank's expectations, economic data since January’s unchanged policy decision, when Governor Ida Walden Bache stated that the next hike was likely to come in March, has provided evidence of persistent underlying inflation pressures.
Norges Bank could respond by raising the rate projections in this month’s quarterly Monetary Policy Report to show a higher likelihood of at least one more 25bp hike following this week’s expected increase. December’s projections showed a peak of 3.11%, implying that a move to 3.25% was only partially factored in, but January’s policy statement warned that signs of more persistent inflation could warrant a higher policy rate.
The central bank's Regional Network report, published this month, showed businesses expected output to flatline in the first half of this year but prices to keep rising at above inflation target rates, with most firms planning increases of more than 3%. Annual wage growth this year was expected to be 4.6%, higher than in the previous survey and just below Norges Bank's own forecast of 4.7%, before dropping to 3.9% in 2024.
CPI came in at 6.3% in February and the target CPI-ATE measure at 5.9%, with the latter back in line with Norges Bank's forecast following an overshoot in January. Less volatile service sector inflation was still running strong, at 5.3%.
Recent krona weakness in response to falling oil prices and sagging demand for exports reinforces the case for leaving the door open to further hiking. The krona's effective exchange rate index, the I-44, stood at 119.80 on March 21 versus 117.43 at the start of the month, a 2.0% fall with a higher number indicating a depreciation. The index started February at 115.20.