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MNI STATE OF PLAY: Norges Set To Hold In Thursday Decision

Norges Bank looks set to leave both its main interest rate and guidance for its policy path to start to move higher in the first half of 2022 unchanged when it announces its rate decision on Thursday.

While Norges's Monetary Policy and Financial Stability Committee has been at the forefront of central banks in advanced economies setting out a tightening path, its January meeting will not be accompanied by a new forecast round. The forecasts in the December Monetary Policy Report implied that the policy rate would remain at 0% for more than a year before rising a little more rapidly than previously expected as Covid vaccine deployments boost export markets.

Those forecasts did not assume any fresh wave of national lockdowns.

The krone exchange rate, measured by the Bank's import-weighted I-44 index, has after a long period of weakness appreciated, driven by greater optimism in global financial markets and a rise in oil prices, key determinants for Norway's oil- and export-led economy.

DOWNSIDE RISKS

A stronger currency and improved economic outlook will have offsetting effects on inflation, while the economic outlook has arguably improved further out but worsened near term as the downside risks cited in Norges Bank's analysis from rising Covid infections have materialised.

While the common view among analysts is for no change to rate guidance, one lingering question is whether the committee, which unusually combines financial stability and monetary policy decision making, chooses to say something more on risks posed by house price inflation.

In December the committee said it was "concerned that house prices have risen markedly since spring and that a long period of low interest rates increases the risk of a build-up of financial imbalances."

A mix of low interest rates and working from home appear to be fuelling households' willingness to spend on property. Overall household credit growth has only edged up, but the central bank could potentially see a case for tightening mortgage regulations even if it is too early to bring forward projected policy rate increases.

MNI London Bureau | +44 203-586-2223 | david.robinson@marketnews.com
MNI London Bureau | +44 203-586-2223 | david.robinson@marketnews.com

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