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Norway Monetary Policy January 2023

Norway: Norges Bank meets expectations and pauses tightening cycle in January

At its 18 January meeting, the Executive Board of Norges Bank unanimously voted to pause its tightening cycle and leave the sight deposit rate unchanged at 2.75%. The move, which had been largely priced in by markets, came on the heels of smaller 25 basis point increases in both November and December, following September’s 50 basis point hike.

The decision was driven by the Bank’s assessment that global inflation is already at or close to its peak. Additionally, the Bank noted higher volatility regarding energy prices in 2023. As Norges Bank has raised interest rates considerably in a relatively short period of time, it took a wait-and-see approach in a bid to assess the impact of previous hikes on the economy amid a more uncertain environment.

In terms of forward guidance, Norges Bank hinted it would resume the tightening cycle at its next meeting, scheduled for 22 March. This reinforced the Central Bank’s December statement that it would raise rates in Q1 2023. The Bank noted that activity in the Norwegian economy has remained dynamic and that inflation remained well above the 2.0% target. Additionally, the labor market is still tight.

The majority of our panelists expect a 25 basis point increase at the meeting in March.

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