MNI NORGES WATCH: Rate On Hold, Concerned About Weak Krone

MNI (LONDON) - Norges Bank left its policy rate on hold at 4.5% in August, saying that it was likely to stay there for some time and highlighting concerns about krone weakness.

The Bank's Monetary Policy and Financial Stability Committee repeated its guidance that the policy rate was likely to be at 4.5% "for some time to come", though Governor Ida Wolden Bache ditched her more specific line from the June meeting that if things evolved as expected policy would remain unchanged until the end of the year. With no new forecasts to accompany the August decision the Bank's commentary put krone weakness centre stage.

The Norwegian currency, hit by volatility in international asset prices, has been weaker than Norges Bank projected in June. The Bank's Monetary Policy and Financial Stability Committee said that it was "particularly concerned with developments  in the krone exchange rate and the potential implications for inflation."

The currency's movements were "especially large amid the market turbulence at the beginning of August" the Committee noted. 

The Committee left the possibility of a hike on the table while stressing two-sided inflation risks. If inflation stays higher for longer than expected "the policy rate may be set higher" while there could be an earlier cut if there is a more pronounced slowdown or if inflation is expected to return faster to target, the Monetary Policy Assessment stated.

Market pricing has pointed to a late 2024 cut and the August guidance leaves that option open.

The Bank’s economic analysis acknowledged that inflation has been softer than it had previously predicted, with the 12-month increase in the target core measure, CPI-ATE, coming in at 3.3% in July, still markedly above 2% goal, and CPI at 2.8%. 

The June projections showed inflation staying above target, reinforcing the central bank's caution over easing compared to other advanced economy central banks.