MNI NORGES WATCH: Policy On Hold For Some Time To Come

Norges Bank left its policy rate unchanged at 4.5% at its January meeting and kept its December guidance intact, stating that the policy rate was likely to stay on hold "for some time" and that it could still cut or hike if the economy did not evolve as expected.

There were no new forecasts published alongside the January decision but Norges Bank said its December Monetary Policy Report projections were holding good. The in-house rate projection in December showed the first cut between the fourth quarter of this year and the first quarter of next, although the central bank noted that the krone had strengthened since that forecast was made.

The decision to leave policy unchanged was universally anticipated by analysts but there was some speculation over whether the guidance would be tweaked to remove the reference to hikes.

"Both inflation and economic activity have been broadly in line with the projections in the December (MPR) ... The krone is stronger than expected. The overall prospects for the Norwegian economy do not appear to have changed materially since the previous Report," the Bank stated.

In its brief assessment of the economy Norges Bank noted that while underlying inflation has been slightly lower than expected there were some signs of upward pressures from geopolitical events, with freight rates from Asia to Europe rising due to the turmoil in the Red Sea. Employment growth has been weak but unemployment has remained low by international standards, standing at just 1.9 percent in December.

The 12-month rise in the target CPI-ATE core inflation measure was 5.5% in December, with the rate of increase in imported and domestically-produced goods easing, Norges Bank noted.

While the stronger krone should feed through to a lower rate path, the central bank stressed that easy monetary policy was not just around the corner with the effects of the currency's earlier weakness still feeding through.

"Business costs have increased considerably in recent years, and continued high wage growth and the krone depreciation through 2023 will likely restrain disinflation. Consequently, there will likely be a need to maintain a tight monetary policy stance for some time ahead," it stated.