Norges hikes its Key Policy Rate by 50bps as expected to 2.25%; policy rate will most likely be raised further in November; This may suggest a more gradual approach to policy rate setting ahead

• Repo Path: Sep’22 1.53% (prev. 1.39%), Dec’22 2.45% (prev. 1.99%), end-2023 3.10% (prev. 3.10%), end-2024 2.93% (prev. 2.99%), end-2025 2.56% (prev. 2.68%)
• Inflation Forecasts (CPI-ATE): Sep’22 4.74% (prev. 3.75%), Dec’22 4.97% (prev. 4.09%). end-2023 4.45% (prev. 3.06%). end-2024 3.04% (prev. 2.95%), end-2025 2.38% (prev. 2.62%)

ECONOMY

• Many will be facing a squeeze on finances given the rapid rise in prices at the same time as the policy rate is being raised. But a faster rate rise now reduces the risk of inflation becoming entrenched at a high level and thereby the need for a sharper tightening of monetary policy further out.

INFLATION

• “Inflation is markedly above our target of 2 percent, and there are prospects that inflation will remain high for longer than projected earlier. We are raising the policy rate with the aim of bringing down inflation,”

FUTURE PATH

• The future path of the policy rate will depend on how the economy evolves, and our projections are more uncertain than normal. If there are prospects that inflation will remain higher for longer than we now project, there may be a need for a higher policy rate. A more pronounced decline in inflation and activity than currently projected may reduce the need for rate increases.

Via Norges