MNI NORGES WATCH: Seen On Hold, Any Twist Likely Hawkish
MNI (LONDON) - Norges Bank is set to keep its policy rate on hold at the 4.5% level where it has stayed since December 2023 at its meeting this week, with the focus on whether it sees the balance of risks having shifted to the upside since last month, when it stated that the first cut this cycle was most likely to come in March.
January is an interim meeting, with no new set of economic forecasts, which places the spotlight on the Monetary Policy and Financial Stability Committee's statement and economic summary and comments from Governor Ida Wolden Bache. An explicit shift in its policy statement away from the March cut looks unlikely, as there has not been enough in the data to justify a change, despite increases in energy prices and foreign rates pricing.
Wolden Bache could opt to tilt the scales slightly towards leaving the policy rate on hold for longer or at least avoid saying anything that might undermine the krone. Any change to the policy steer looks more likely to be in a hawkish rather than dovish direction.
Since December, market pricing of foreign rate paths has moved up, while the risk of krone depreciation is a continuing concern for the Norwegian central bank. If Norges Bank were to leave the door ajar to further delaying the start of monetary easing beyond March or point towards slower cuts down the line it could support the currency and reduce the risk of higher imported inflation.
The December forecasts showed only gradual rate cuts once the easing cycle gets underway, with the policy rate falling to 4.1% this year, 3.4% in 2026 and hitting 3.0% three years out.
KRONE CONCERNS
Norges Bank's Executive Director Monetary Policy Ole Christian Bech-Moen told a Nordea seminar in November that much of the impact of the substantial krone depreciation may already have been felt, which would point to lower inflation pressure ahead. But the central bank will be wary of restarting the cycle of currency depreciation and higher inflation outturns. (See MNI: Signs FX Affecting Prices Faster - Norges Bank Director )
The krone on its I-44 import weighted index has been little changed from its level at the time of the December policy announcement, at 122.56 on Jan 17 versus 122.19, with a higher reading indicating a deprecation.
Inflation on the targeted core CPI-ATE measure was 2.7% on the year in December, just below the 2.8% predicted by Norges Bank, while there has been sparse activity data.
While some analysts have pointed to U.S. policy under new President Donald Trump as a wildcard for Norges Bank, the timing of its January policy meeting, with the announcement early on Thursday, the meeting wrapped up beforehand and the work on the economic update earlier still, suggests that Trump's anticipated swathe of executive actions may come too late in the day to impact the collective message. Wolden Bache is likely, though, to be questioned about Trump's policies at her press conference.