Norwegian Key Policy Rate 4.5% vs. Exp. 4.5% (Prev. 4.5%); the policy rate forecast implies that the policy rate will remain at 4.5% to the end of 2024 before being gradually reduced from Q1-2025

Rates

• "The policy rate will likely be kept at 4.5 percent to the end of the year,”


• Governor bache: “We believe that there is a need to keep the policy rate at today’s level for a period ahead but that the time to ease monetary policy is approaching".


• The Committee judges that a restrictive monetary policy is still needed to bring inflation down to target within a reasonable time horizon.


• If prospects suggest that inflation will return to target faster or there is a more pronounced slowdown in the Norwegian economy, the policy rate may be lowered faster than currently envisaged.


• If the krone depreciates further or capacity utilisation increases, wage and price inflation could remain elevated for longer. A higher policy rate than currently envisaged may then be required.

Inflation

• Inflation has declined markedly from its peak, but underlying inflation has not declined to the same extent.


• The rapid rise in business costs and the krone depreciation are expected to restrain further disinflation.


• Inflation is projected to approach 2 percent towards the end of 2027.

Growth

• Economic growth is set to pick up slightly in the years ahead.

Unemployment

• Unemployment will likely edge up

Reaction details (09:15)

• 
  EUR/NOK fell from 11.70 to 11.6657 in an immediate reaction before extending to an 11.6519 session low over the course of 15-minutes.

Analysis details (09:15)

• In short, a hawkish hold. As expected, the policy rate was maintained at 4.50%. While the rate projections were adjusted and the timing of the first cut brought forward from Q2-2025 the adjustment was of a smaller magnitude than widely expected heading into the announcement. The new path/commentary implies a first cut in Q1-2025, a quarter earlier than the June MPR's view but more hawkish than expected heading into the release. Pre-release, the general view was that the path would price in around a 50% chance of the first cut happening in Q4-2024 (i.e. December), however, the forecast for that period was subject to only a very minor adjustment.


• From Governor Bache, we will be looking for details into just how much the NOK's weakness factored into their deliberations and eventual decision to deliver a more hawkish-than-expected repo path

19 Sep 2024 - 09:00- ForexImportant- Source: Reuters