MNI NORGES BANK WATCH: Eyes On Guidance As Rates On Hold

Norges Bank looks set to leave its policy rate unchanged at 4.5% at its January meeting, in line with comments by Governor Ida Wolden Bache following December’s 25-basis-point increase, and while there has been speculation it could change its guidance to remove the possibility of further hikes this seems less likely than otherwise.

In December, Wolden Bache said there would be no need for more hikes if the economy evolved as expected. The current guidance still mentions a willingness to make further rate increases if cost inflation remains high or "the krone turns out to be weaker than projected", but it would be unlikely to change the language so soon to focus solely on the potential for cuts.

KRONE APPRECIATION

The krone has appreciated 3.7% on its trade-weighted index since the day before the December policy announcement. A change to the guidance to excise the reference to possible further tightening could kick away one of the props for the currency, which has also been boosted by expectations for oil prices.

Norges Bank's December in-house rate projection showed the policy rate edging fractionally above 4.5% in the first half of 2024 with the first cut largely priced in for the fourth quarter. No new rate path will be published this month, but the central bank could use the next quarterly rate projection to tilt expectations down.

January’s policy decision will be accompanied by updated economic commentary. Data published since the last meeting showed the target core inflation measure, CPI-ATE, coming in a touch weaker than expected at 5.5% on the year to December compared to 5.6% in Norges Bank's forecasts.