Norges Bank Policy Announcement (Dec): 2.75% vs. Exp. 2.75% (Prev. 2.50%); policy rate will most likely be raised further in Q1 2023

• There are signs that the slowdown may prove somewhat more pronounced than envisaged in September.


• The policy rate has been raised considerably over a short period of time, and monetary policy has started to have a tightening effect on the economy.


• If the pressures in the economy persist, and signs emerge that inflation will remain high for longer than currently projected, a higher policy rate may be needed than currently envisaged.


• An easing of economic pressures will help curb inflation further out.


• 
  Repo Path: Dec’22 2.46% (prev. 2.45%), Mar’23 2.82% (prev. 2.82%), end-2023 3.08% (prev. 3.10%), end-2024 2.78% (prev. 2.93%), end-2025 2.38% (prev. 2.56%)


• 
  Inflation Forecasts (CPI-ATE): Dec’22 5.75% (prev. 4.97%), Mar’23 5.86% (prev. 5.35%), end-2023 4.29% (prev. 4.45%), end-2024 3.17% (prev. 3.04%), end-2025 2.45% (prev. 2.38%)

Reaction details (09:10)

• Following the policy announcement, EUR/NOK experienced fleeting downside - perhaps as the Norges Bank continues to guide participants towards further tightening to control inflation, and despite clearer indications of a more pronounced economic slowdown. However, the move was limited in both duration and magnitude, keeping the NOK within existing parameters.

Analysis details (09:10)

• Overall, very much as expected from the Norges Bank. Which delivered the flagged (by Governor Bache in the last press conference) 25bp hike, alongside acknowledging that inflation remains elevated, the labour market is slightly tighter and the economic slowdown might be longer lasting than forecast in September - in-fitting with what data has shown since.


• In terms of policy ahead, the Repo Path was subject to very minor downside alterations and implies around 35bp of tightening before a peak around March 2023; i.e. a 25bp move in Q1 2023 and then some optionality for another move, if inflation remains stubbornly elevated as the forecasts for CPI-ATE imply.

15 Dec 2022 - 09:00- ForexImportant- Source: Norges Bank