MNI NORGES WATCH: Seen On Hold, No Hardening Of Sep Cut Steer

Norges Bank is set to leave its key policy rate on hold at its 4.5% peak at its May 3 meeting and to again signal that no cut is likely until after the summer.

With no quarterly forecast round due this month, there will be no new in-house rate projection and the focus will be on the wording of the Monetary Policy and Financial Stability Committee statement and then Governor Ida Wolden Bache's comments on when the first hike is likely to come. The line in the March statement that rates are expected to be on hold at 4.5% "for some time" ahead is likely to be repeated and Wolden Bache could repeat her informal guidance that September is the most likely timing for the cut.

It is doubtful whether the committee would see any benefit in tightening the wording of the policy statement to provide a firmer steer towards, or possibly even later than, September. By its June meeting, ending with a policy announcement on June 20, Norges Bank will have completed its quarterly forecast round and it will have had plenty of time to assess the implications of the European Central Bank's June 6 policy decision.

The benefits of waiting at least until next month before updating or shifting guidance appear clear. Norges Bank, the last of the advanced economy central banks to end its tightening cycle, gave itself room for manoeuvre in March, stating that if the krone was weaker than forecast or cost inflation stayed high it could raise the policy rate again or if inflation declined more rapidly it could cut more swiftly.

The central bank will provide some commentary on the latest economic developments alongside its May decision.

DEVELOPMENTS

One key development is Norway's annual collective bargaining process between unions covering predominantly the industrial sector and employers culminated last month in a 5.2% wage growth agreement for 'frontline' sectors, above Norges Bank's whole economy 4.9% estimate of wage growth in 2024. The deal will act as a benchmark for other sectors.

Another upside inflationary impulse comes from the krone being around 2.5% weaker than the central bank assumed in March on its real, trade-weighted, I-44 measure. Headline inflation, however, has run a touch softer than expected.

On balance Norges Bank could see the risks tilting to the upside, but more detailed analysis can wait until next month.