MNI STATE OF PLAY: Norges Bank Hikes 50bps, May Slow Pace

Norges Bank raised rates by 50 basis points as expected, though it indicated that it would ease back on the throttle and revert to 25bps hikes.

The outcome of the September meeting lifted Norges Bank’s policy rate to 2.25%, and the Monetary Policy and Financial Stability Committee stated that its next move was likely to come in November, when its collective rate profile points to a 25 bps hike. The policy rate was shown peaking at 3.11% in October 2023, suggesting that the Norwegian central bank assumes that it would only need another three or four 25 bps hike to finish its tightening cycle if the economy evolves as expected.

By the end of the three-year forecast the policy rate dipped to 2.56%.

"The policy rate has been raised from a very low level over the past year and monetary policy is starting to have a tightening effect on the Norwegian economy. This may suggest a more gradual approach to policy rate setting ahead," Norges Bank's Monetary Policy Report, which accompanied the policy announcement, stated.

INFLATION FORECAST HIGHER

The Bank’s near-term inflation forecast rose steeply, with the target CPI-ATE measure shown up 4.8% in 2023 on the previous year, 1.5 percentage points higher than in the June forecast. It then stays above the 2% target to end the three-year period at 2.38%.

While near-term inflation was forecast to be sharply higher, the near-term growth forecast was slashed to 0.8% in 2023, down 0.8 percentage point from June.

The Committee highlighted exceptional levels of uncertainty over the economic outlook and left the door open to faster-than-envisaged tightening, while acknowledging risks to both the upside and downside.

Norges Bank is "concerned with the rapid and broad rise in inflation over a short period" but there was also " a risk of a more pronounced slowdown in both global and domestic activity."