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Norway Monetary Policy November 2021

Norway: Norges Bank stands pat in November meeting; hints at second rate hike in December

At its 3 November monetary policy meeting, the Executive Board of Norges Bank unanimously decided to keep the sight deposit rate unchanged at 0.25%, after raising it at the previous meeting on 22 September. The decision was expected by market analysts.

Norges Bank assessed that the Norwegian economy has continued to recover as expected, with activity now above pre-pandemic levels and the unemployment rate continuing to decline. Regarding prices, the Bank stated that while inflation has risen further recently due to higher energy prices, core inflation remains below target. Meanwhile, the Bank noted stronger wage growth and the recent krone appreciation as upside and downside risks to underlying inflation, respectively. The decision to stand pat was largely due to lingering uncertainty over the ongoing pandemic and supply chain bottlenecks. The Bank also added that uncertainty over the effects of higher interest rates called for a gradual tightening cycle.

In terms of forward guidance, the Bank reiterated the hawkish tone of the previous meeting in November’s communiqué, stating that the “current assessment of the outlook and balance of risks suggests that the policy rate will most likely be raised in December” as a “normalising economy suggests that it will be appropriate to raise the policy rate further from today’s level”. Looking further ahead, the Bank looks set to continue with policy normalization, hinting at three rate increases during 2022. Consequently, virtually all of our panelists have penciled in a 25 basis-point hike for the next meeting and see the sight deposit rate ending the year at 0.50%, before further tightening in 2022.

Commenting on policy moves next year, James Smith and Francesco Pesole, economists at ING, said:

“The recent repricing of other central banks means the Norges Bank is no longer the hawkish outlier it appeared to be only a few weeks ago. But evidence from 2019 suggests that the Norges Bank, which hiked several times at a time where the Fed was cutting, is still likely to be among the most rapid rate-hikers in the G10 space through 2022.”

The next monetary policy rate decision is set to be announced on 16 December.

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