NORGES BANK: Wolden-Bache To Speak On Monetary Policy Trade-offs This Evening

Norges Bank Governor Wolden-Bache will speak on “Monetary policy trade-offs in a small open economy” at the Peterson Institute this evening (1815BST/1915CET). This will be a more appropriate forum to guide markets ahead of the November 7 Norges Bank decision than last week’s speech, which centred on balance sheet policy.

• It is safe to assume that policy rates will be kept on hold again at 4.50% in November. However, we think that if Norges Bank want to keep the door open to a December rate cut (the September MPR rate path assigns a 20% probability of such a move), it may need to signal as much at the November decision.
• Governor Wolden-Bache could therefore use tomorrow's speech to create some landing room for a November guidance tilt.
• Norges Bank’s hawkish stance through this year has largely been due to the weaker-than-expected NOK, which has been weighed against weaker-than-expected inflation and sluggish economic activity.
• These trade-offs have remained prevalent since the September decision.
• The I-44 real exchange rate index has risen almost 2% since the September decision (indicating a weaker NOK) and lies above the central bank’s latest projections.
• However, September CPI-ATE inflation was also two tenths below MPR forecasts at 3.1% Y/Y.