Norges Bank hikes by 25bps to 2.50% (exp. evenly split between 25bp & 50bp); the policy rate will most likely be raised further in December

• Inflation has increased more than projected, and the labour market appears to be a little tighter than previously anticipated. These developments could suggest raising the policy rate by more than 0.25 percentage point at this meeting. 
  


• On the other hand, there are signs that some areas of the economy are cooling down, and prospects for lower-than-expected freight and energy prices may curb inflation ahead. 
  


• The policy rate has been raised markedly over a short period, and monetary policy is beginning to have a tightening effect on the economy. This may suggest a more gradual approach to policy rate setting.


• The outlook is more uncertain than normal. The future policy rate path will depend on how the economy evolves.

Via Norges

Reaction details (09:05)

• Despite expectations being evenly divided between 25bp and 50bp, market pricing was skewed towards the larger increment and thus the 25bp hike 'disappoints' this somewhat, despite adhering to the explicit guidance provided in September. As such, the NOK has come under some pressure with EUR/NOK lifting from 10.2500 to 10.3630 on the announcement, before settling back towards the 10.31 mark.

Analysis details (09:10)

• Overall, the announcement was in-fitting with the guidance provided by the Bank in September. A 25bp hike was delivered despite the deteriorating inflation situation, a development that Norges Bank explicitly referenced and said could have merited a larger increment of tightening. However, the Committee continues to place emphasis on the growth situation writing "there are signs that some areas of the economy are cooling down" and acknowledging the tightening effect that the higher policy rate is beginning to have.


• For the December gathering, the Committee points to a further hike being likely. Reminder, the repo path from September implied 25bp increases would be delivered at both the November and December gatherings.


• Next up, we look to the presser from Governor Bache at 09:30GMT; recall, after the September announcement it was within the presser that the Governor provided the explicit guidance towards 25bp at the next gathering. More broadly, participants will be keeping a close eye on the inflation and employment metrics between now and December to determine if any developments there may prompt the Committee to consider a return to greater increments of tightening.

03 Nov 2022 - 09:00- EnergyImportant- Source: Norges