MNI NORGES WATCH: Norges Holds, Points To 25bps Hike In March

Norges Bank's Committee left its policy rate on hold at 2.75% at it January meeting and stated a March hike was likely, taking it close to its tightening cycle peak.

The January policy decision was not accompanied by fresh forecasts, but Norges Bank’s most recent projections, published in November, showed the policy rate reaching a maximum of just over 3.1%. With Governor Ida Wolden Bache stating that the next hike would probably come at the next meeting, a repeat of December’s 25-basis-point increase is likely.

Still, January’s brief accompanying economic analysis cited two-way risks to the Monetary Policy and Financial Stability Committee central view.

STRONGER ACTIVITY

International price impulses are declining, with electricity and gas future prices clearly lower than assumed in November. Falling energy prices, however, are helping to support economic activity and Norges Bank noted that activity in its major trading partners seemed to be somewhat stronger than it had anticipated and that mainland, or non-oil, domestic Norwegian activity was also firmer than assumed. Norges Bank also noted that transportation costs between countries had receded towards pre-pandemic levels.

The labour market remains a source of upward inflation pressure. Registered unemployment was just 1.6% in December, exceptionally low by international standards, although the central bank noted that job vacancy growth has slowed.

Since the November Monetary Policy Report, "the labor market appears to have been slightly tighter than forecast", with the Committee taking the view that "there will be a need to increase the interest rate somewhat further to bring inflation down towards the target.”

The March policy announcement will be accompanied by updated rate projections and quarterly economic forecasts. But having been at the head of the pack in starting to tighten policy Norges Bank still looks on track to head the pack in ending tightening.