Norges Bank hikes by 25bps to 3.00% vs exp. 3.00% (prev. 2.75%); the policy rate will be raised further in May; decision unanimous

INFLATION:

• Consumer price inflation among Norway’s main trading partners has receded somewhat in recent months but is still high.


• Wage growth has been higher than projected in December, and there are prospects that it will remain higher than projected earlier in 2023 too.

NOK

• The krone is now significantly weaker than projected in the December Report.

REPO PATH: 

• Mar’23 2.78% (prev. 2.82%), Jun’23 3.18% (prev. 3.03%), Sep’23 3.52% (prev. 3.11%), end-2023 3.60% (prev. 3.08%), end-2024 3.45% (prev. 2.78%), end-2025 3.02% (prev. 2.38%)


• If the krone proves weaker than projected, or pressures in the economy persist, a higher policy rate than currently projected may be needed to bring inflation down to target. If inflation falls faster or unemployment rises more than projected, the policy rate may be lower than projected.

INFLATION FORECASTS (CPI-ATE): 

• Mar’23 6.19% (prev. 5.86%), Jun’23 6.01% (prev. 5.76%), Sep’23 5.42% (prev. 4.85%), end-2023 4.88% (prev. 4.29%), end-2024 3.44% (prev. 3.17%), end-2025 2.64% (prev. 2.45%)

Via Norges

Reaction details (09:06)

• The NOK appreciated heading into the announcement and on release saw some modest depreciation given the unwinding of some calls for a 50bp hike, with EUR/NOK moving from 11.26 to 11.30, before dipping back to pre-announcement levels as the hawkish guidance was digested.

Analysis details (09:10)

• In short, the decision was as-expected though disappoints some calls for 50bp while the repo path adjustment for 2023 was hawkish.


• A 25bp hike was in-fitting with the guidance provided at the last gathering and the majority of respondents surveyed by Reuters. However, it does disappoint a minority of calls for 50bp. Despite sticking to the smaller magnitude, the Norges Bank acknowledged the upward-pressure on inflation implied by the NOK being "significantly weaker" than in December's report and undertook a hawkish adjustment to the Repo Path.


• Specifically, the path now implies an end-2023 rate of 3.60% (prev. 3.08%), i.e. for 50bp of tightening to be delivered and the optionality for further upside, if needed. While the size of further hikes is currently unclear, the path's breakdown implies 25bp adjustments; awaiting guidance from Governor Bache at 09:30GMT. However, the policy rate is then seen falling slightly by end-2024 to 3.44%; relatively in-fitting with December's guidance in terms of a 2024 cut being implied.

23 Mar 2023 - 09:00- ForexImportant- Source: Norges