Norges Bank unexpectedly hikes its Key Policy Rate to 4.50% from 4.25% (exp. a hold at 4.25%); The forecast indicates that the policy rate will lie around 4.5% until autumn 2024 before gradually moving down
- The policy rate is likely close to the level required to return inflation to target within a reasonable time horizon.
- Committee is concerned with balancing the risk of tightening too much against the risk of tightening too little. The economy is now cooling down, and the full effects of the past rate hikes have yet to be seen. On the other hand, inflation is high, and the krone depreciation makes it more challenging to bring down inflation.
- Committee assesses that a tight monetary policy stance will likely be needed for some time ahead in order to return inflation to target within a reasonable time horizon. Further out, when inflation falls back and economic conditions so warrant, the Committee can start lowering the policy rate.
- If cost inflation remains elevated or the krone turns out to be weaker than projected, price inflation may remain higher 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.
RATE PATH
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2023: Q4-2023 4.30% (prev. 4.31%) -
2024: Q1-2024 4.52% (prev. 4.44%), Q2-2024 4.55% (prev. 4.44%), Q3-2024 4.44% (prev. 4.41%), Q4-2024 4.29% (prev. 4.33%) -
2025: Q1-2025 4.14% (4.22%), Q2-2025 3.97% (prev. 3.96%) Q3-2025 3.80% (prev. 3.96%) Q4-2025 3.60% (prev. 3.80%), end-2026 2.97% (prev. 3.20%)
INFLATION FORECASTS (CPI-ATE)
-
2023: Q4-2023 5.83% (prev. 5.91%) -
2024: Q1-2024 5.43% (prev. 5.53%), Q2-2024 4.81% (prev. 4.75%), Q3-2024 4.65% (prev. 4.43%), Q4-2024 4.31% (prev. 4.14%), -
2025: end-2025 3.08% (prev. 3.04%) -
2026: end-2026 2.25% (prev. 2.37%)
Via Norges
Reaction details (09:22)
- The hike has sparked marked NOK appreciation against both the EUR and USD.
-
USD/NOK fell from 10.70 to 10.60 before falling to a 10.5860 trough while EUR/NOK fell from 11.6745 to 11.5690 before slipping to an 11.5434 trough.
Analysis details (09:20)
- Norges bank defied consensus by triggering the hike that they flagged in November's meeting as "likely" to occur in December. However, consensus was for unchanged given the development of inflation and growth since then and the optionality at that meeting to leave rates unchanged if "the Committee becomes more assured that underlying inflation is on the decline".
- Today's hike appears to have been spurred by the NOK (marked recent currency depreciation was the sole factor in favour of a hike in the run-up to today's decision). Interestingly, the repo path and statement do not rule out further tightening. With around a 20% chance of a 25bp move by Q2-2025 implied. However, given the recent pivot from the Fed and pronounced market pricing for global easing today's 4.50% rate is likely the peak.
- From the press conference, we look to the Governor's assessment on how much NOK appreciation they want to see in order to call this the peak and begin looking to rate cuts, the first of which is forecast in Q1-2025. On the NOK, Wednesday's FOMC gave the Norges Bank a helping hand. Reminder, ECB due at 13:15GMT.
14 Dec 2023 - 09:00- Fixed IncomeImportant- Source: Newswires
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