MNI NORGES WATCH: Norges Seen Keeping Hike For March Meeting

Norges Bank is likely to signal a March hike when it announces its January policy decision, though there is an outside chance it could make the first quarter’s expected 25-basis-point rate increase on Thursday.

The Monetary Policy and Financial Stability Committee's guidance at its December meeting, when it hiked from 2.5% to 2.75%, was that "the policy rate will most likely be raised further in the first quarter of next year.” There is no meeting in February, and March, which coincides with its quarterly forecast round, has been seen as the most likely moment for the next increase, which would take Norges Bank close to the end of its expected tightening cycle.

While recent economic data has tend to come in stronger than Norges Bank’s projections, most analysts do not see this overshoot as sufficient to trigger a hike at this week’s meeting, although Governor Ida Wolden Bache is due to hold a press conference, which would give her a chance to explain any such decision if taken.

GROWTH OUTPERFORMS

The targeted CPI-ATE inflation measure, which excludes energy and tax changes, hit 5.8% in the year to December, data showed on Jan 10, versus a 5.7% estimate in the Bank’s December Monetary Policy Report. However, the international standard measure, CPI inflation, was 0.1 percentage point below Norges Bank's prediction, at 5.9%.

Growth also came in stronger than expected. Norges Bank had seen mainland, or non-oil, GDP falling by a monthly 0.2% in November and then by 0.4% in December, but November’s official data showed growth of 0.2% in November, driven higher by retail trade, including a one-off boost to car sales due to import timings.

Unemployment is very low by international standards, at just 1.6%, while the trade-weighted exchange rate, I-44, depreciated to 113.90 on Jan 16 from the stronger level of 110.35 at the start of December, adding further to the case for tightening.

But Norges Bank's December projections suggested that the policy rate would peak at just over 3.1% in Q3 2022 before declining to 2.38% three years ahead, suggesting that at most two more 25-basis-point hikes will be required.