MNI STATE OF PLAY: Norges Bank To Stick To March Hike Guidance

Norges Bank looks set to keep its policy rate unchanged at 0.5% in January, pausing a tightening cycle that saw it move ahead of the central bank pack after hiking in both September and December, although policymakers will likely restate guidance that the next hike is on the way, most likely in March, when they will have completed their next full forecast round.

The latest prices data, with Norway like many other countries seeing inflation rising faster than expected, support the central bank's case for pressing ahead with tightening but there is no expectation that it will deliver a surprise hike at the January meeting.

No fresh forecasts and no press conference at outgoing Governor Oystein Olsen’s last meeting, offers no opportunity for the Monetary Policy and Financial Stability Committee to explain any shift in the pace of tightening, leaving policymakers maintain their stance of leaving policy steady at interim meetings.

RESTATE

The committee is instead likely to simply restate its December guidance that given "the outlook and balance of risks, the policy rate will most likely be raised further in March", leaving the debate open on whether three or four hikes can be expected this year, lifting the policy rate to either 1.25% or 1.5% by year end.

The committee's December forecasts pointed to hikes in March and June with a single hike then likely in the second half followed by a sharp deceleration in the pace of tightening, with the policy rate projected to be at just 1.75% at the end of 2024.

Inflation has, like elsewhere, surprised to the upside, with the target core CPI measure, CPI-ATE, rising to 1.8% y/y in December from 1.3% in November -- Norges Bank’s December forecast round saw it flatline at 1.3%. CPI, which provides an international comparison, came in at 5.3% in December, up from 5.1%, despite state support dampening somewhat the impact on households of surging energy prices.

CURRENCY APPRECIATION

Developments since Norges Bank's December meeting, however, have not been one directional. The krone, which tends to reflect a mix of oil prices and interest rate differentials, has been buoyant, pushing down on import prices. On the import weighted I-44 measure, the Norwegian krone stood at 107.47 on Jan 17 compared with 110.32 on December 15, when the decision to hike the policy rate was taken, a 2.6% appreciation.

Olsen, speaking to MNI following the December hike, welcomed advanced economy central banks to moving to more restrictive policy, having previously noted that although the Norwegian central bank has been an early mover other central banks could well catch up (MNI INTERVIEW: Norges Head Hails Retreat Of Expansionary Policy ).

“We are coming closer to a situation where the very expansionary monetary policy is going to be gradually reversed. That is a positive thing," Olsen said.