Norges Bank maintains its Key Policy Rate at 4.50% as expected; reiterates guidance that "policy rate will likely need to be maintained at the current level for some time ahead"

RATE PATH

• 2024: Q1-2024 4.50% (prev. 4.52%), Q2-2024 4.51% (prev. 4.55%), Q3-2024 4.44% (prev. 4.44%), Q4-2024 4.29% (prev. 4.29%)
  


• 2025: Q1-2025 4.16% (4.14%), Q2-2025 4.02% (prev. 3.97%) Q3-2025 3.85% (prev. 3.80%) Q4-2025 3.66% (prev. 3.60%), end-2026 3.07% (prev. 2.97%)

INFLATION (CPI-ATE)

• 2024: Q1-2024 % 4.97(prev. 5.43%), Q2-2024 4.20% (prev. 4.81%), Q3-2024 3.89% (prev. 4.65%), Q4-2024 3.46% (prev. 4.31%)


• 2025: end-2025 3.0% (prev. 3.08%)


• 2026: end-2026 2.55% (prev. 2.25%)

RATE GUIDANCE

• If cost inflation remains elevated or the krone turns out to be weaker than projected, inflation may remain high for longer than currently projected. In that case, the Committee is prepared to raise the policy rate again.
  


• If there is a more pronounced slowdown in the Norwegian economy or inflation declines more rapidly, the policy rate may be lowered earlier than currently envisaged.

INFLATION

• 
  Price inflation is slowing but is still markedly above target. Business costs have increased sharply over the past years, and high wage growth and the krone depreciation through 2023 will contribute to keeping inflation elevated ahead.

POLICY

• Monetary policy is having a tightening effect, and growth in the Norwegian economy is low.

via Norges Bank - Statement

via Norges Bank - MonPol report

Reaction details (09:08)

• An unchanged announcement but one which sparked NOK strength given the repo path has not formalised a Q4-2024 rate cut as some were hoping for. As such, EUR/NOK slipped from 11.5300 to 11.4872.

Analysis details (09:15)

• A somewhat hawkish announcement from the Norges Bank with rates unchanged but the policy path not formalising a Q4-2024 cut as some had been expecting given the recent moderation of inflation.


• However, such expectations were caveated by the high absolute level of inflation (a point the Norges Bank references) and the fact that the Norges Bank has made clear it is no rush to begin easing. As such, the June MPR may provide a more appropriate point to make such a rate path alteration and possibly to formally signal expectations for a September cut, as pricing/desks generally expect.


• Ahead, we look to Governor Bache for insight into the deliberations around the policy path and whether they expect to be in a position to formalise end-2024 rate reductions within the June MPR or not. On this, the new inflation forecasts are markedly cooler than the prior but still above the 2.0% forecast band for the entirety of the horizon and actually tick up slightly for end-2026 vs December's MPR.

Press Conference

• Note, the most pertinent update in terms of future policy came at the very end of Governor Bache's press conference at around 10:00GMT and sparked a modest dovish reaction. Where she said that the rate path indicates a cut is most likely in September and a second by the end of Q1-2025. A development which is decidedly dovish when compared to the essentially unchanged repo projections that sparked a hawkish reaction on the initial announcement. Irrespective of her remarks, we await the June MPR for the formalisation of such easing plans.

21 Mar 2024 - 09:00- ForexImportant- Source: Reuters