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Norway Monetary Policy September 2023

Norway: Norges Bank meets market expectations and hikes rates further in September

At its 20 September meeting, the Executive Board of Norges Bank unanimously voted to extend its tightening cycle and deliver another 25 basis point hike, bringing the policy rate to 4.25%. The move, which came on the heels of August’s same-sized increase, had been priced in by markets.

The decision to hike further was driven by Norges Bank’s assessment that higher interest rates are needed to bring inflation back to its 2.0% target within a “reasonable horizon”. Both headline and core inflation have remained markedly above target through August, which has dented consumer purchasing power. Meanwhile, the Bank added that inflation will likely be elevated for some time going forward as labor costs have risen more than previously anticipated. Regarding activity, the Bank noted that while the economy has slowed, the labor market remains strong.

Norges Bank’s forward guidance stated that, following upward revisions, it now expects the policy rate to be around 4.50% for most of next year. Given the current balance of risks, it is likely that the Bank will stay put at its next meeting on 1 November, while another rate increase is to be expected at its last scheduled meeting of this year, set for 13 December. Interest rate decisions will be announced the day after each meeting. Our panel is currently adjusting their forecasts in line with the recent announcement.

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