Norway: Norges Bank surprises markets and resumes tightening cycle in December
At its last scheduled meeting of 2023 on 13 December, the Executive Board of Norges Bank unanimously voted to resume the tightening cycle and hike the policy rate by a further 25 basis points, raising it to 4.50%. The move, which came on the heels of November’s hold, largely surprised markets as another hold had been more widely anticipated. It brought the cumulative rate increase since September 2021 to 450 basis points.
The decision was driven by the Bank’s assessment that, despite the ongoing downward trend in price pressures and inflation in November coming in below September’s expectations, inflation remains “markedly above target”. In addition, the Norwegian krone has been weaker than projected, and wages are forecast to continue growing. Meanwhile, Norges Bank noted that the employment rate is high, although slightly lower than the Bank’s September projection. The Bank considers the current policy rate adequate to bring inflation back to the 2.0% target within a “reasonable time horizon”.
Norges Bank hinted it will hold fire when it convenes next on 24 January. In its communiqué, Norges Bank’s forward guidance stated that monetary policy is likely to remain tight “for some time ahead”, likely until autumn 2024. From then onwards, when inflation falls and economic conditions allow, the Bank will kick-start its loosening cycle. That said, the Bank stated that it will not hesitate to hike the policy rate further if inflation remains higher for longer. Most of our panelists expect the first rate cuts as early as Q2 2024.