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Norway Monetary Policy November 2023

Norway: Norges Bank meets market expectations and keeps rates unchanged in November

At its 1 November meeting, the Executive Board of Norges Bank unanimously voted to hold fire and leave the policy rate at 4.25%, following a cumulative 425 basis points worth of hikes since September 2021. The move, which came on the heels of September’s 25 basis point increase, paused the Central Bank’s tightening cycle and had been largely priced in by markets.

The decision was a cautionary move: Norges Bank highlighted that “the full effects of the past rate hikes are yet to be seen”, so the Bank took a wait-and-see approach to better assess the impact of higher interest rates on the economy. Both headline and core inflation have remained markedly above Norges Bank’s 2.0% target through September, but the Board believes the policy rate is now close to the optimal level to bring inflation back to target within a “reasonable horizon”. In addition, the Bank highlighted that economic headwinds are easing, and the labor market remains strong.

In its communiqué, Norges Bank’s forward guidance stated that it would likely increase the policy rate again at its next meeting, scheduled for 13 December—with the decision to be announced the following day. That said, inflation has eased more than expected recently, and if disinflation trends are sustained until the next meeting, the Bank may hold rates once again. Nevertheless, Norges Bank assured that interest rates would remain high for some time. Our panel expects a final increase in the policy rate in December, and it sees small cuts before the end of 2024.

On the outlook, Goldman Sachs’ Christian Schnittker said:

“Given today’s guidance, we continue to expect one further 25bp hike from Norges Bank in December, to a terminal rate of 4.50%, but see risks increasingly skewed towards no further hike if the inflation data continues to show improvements.”

ING’s James Smith expressed more confidence about another hike in December:

“Norges Bank has stated its intentions to hike again later this year. That reflects a wariness about the recent rise in oil prices, as well as the sell-off in developed market government bonds recently. A December rate hike is therefore our base case.”

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