Norges Bank maintains its Key Policy Rate at 4.50% as expected; "the policy rate will likely be kept at that level for some time ahead"

POLICY:

• If cost inflation remains elevated, or the krone depreciates again, inflation may remain high for longer than previously 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 envisaged in December.


• There will likely be a need to maintain a tight monetary policy stance for some time ahead.


• Monetary policy is having a tightening effect, and the economy is cooling down.

ECONOMY:

• 
  Inflation is markedly above target. Underlying inflation has declined further but is still high.
  


• Unemployment is low, but economic growth is weak.


• Both inflation and economic activity have been broadly in line with the projections in the December 2023 Monetary Policy Report.


• The krone is stronger than expected.


• 
  The overall prospects for the Norwegian economy do not appear to have changed materially since the previous Report.
  

Via Norges Bank

Reaction details (09:14)

• Unreactive to the initial announcement but as the hawkish elements within the decision were digested EUR/NOK fell from 11.3850 to 11.3500.

Analysis details (09:12)

• Overall, as expected from the Norges Bank in terms of the policy announcement and guidance for rates to be maintained for some time ahead. Though, the language and framing of the economy does have a hawkish element and thus has sparked some modest NOK strength (see reaction).


• Specifically, the statement retains the optionality to hike again if necessary (caveated by the optionality to cut earlier than envisaged), highlights that while underlying inflation has declined further it is still high (known, but the explicit mention is hawkish) and that the overall prospects for the economy do not appear to have materially changed since December (again, not necessarily surprising but still hawkish).


• Finally, the guidance for rates is now "the policy rate will likely be kept at that level for some time ahead" which compares to the autumn 2024 implied by the repo forecasts. It is difficult to directly compare today's language with December's forecasts and the implied timing they provide; but, today's verbal guidance can possibly be interpreted as a touch more hawkish.


• Ahead, we have a press conference from Governor Bache at 09:30GMT, which will be scrutinised for any insight into how sure the committee is in the guidance that rates will likely remain where they are for some time (given the hawkish elements mentioned). Further out, for any insight into the timing of the first cut which in December was implied to be from the autumn onward.

25 Jan 2024 - 09:00- ForexImportant- Source: Norges Bank