Norway’s Rate Kept at 16-Year High With No Rush to Cut Soon
(Bloomberg) — Norway’s central bank left borrowing costs at a 16-year high, sticking to its warning that investors may need to wait at least half a year for any prospective easing.
Norges Bank held the key deposit rate at 4.5%, the highest since December 2008, as predicted by all analysts in a Bloomberg survey and repeated its message that settings probably won’t change for “some time ahead.” The krone gave up some of its gains after strengthening as much as 0.4%, trading 0.1% higher at 11.5197 per euro at 12:09 p.m. in Oslo.
The central bank’s rate path shows — most likely — a cut in September, Governor Ida Wolden Bache told reporters at the close of her news conference on Thursday.
The remark was intended to clarify the bank’s message that cuts would begin most likely in the autumn, after officials noticed market participants reading the comment “slightly differently” than intended, she said in an interview.
“But I would like to stress that such precise estimates of timing must be seen in light of the very large uncertainty still about the economic outlook and the outlook for inflation,” she said. That “also means that the outlook for the interest rate is still uncertain.”
Norges Bank, one of the rich-world pioneers of post-pandemic tightening, has struggled more than peers to tame consumer prices. Inflation there is expected to remain the highest this year among the world’s 10 most-traded currency jurisdictions.
With the Federal Reserve and the European Central Bank still on track to cut rates as soon as June, the Norwegian decision raises the prospect that it will become the last among such counterparts to start easing.
On the eve of the Norges Bank announcement, the Fed maintained its outlook for three reductions in borrowing costs this year. Earlier on Thursday, Swiss monetary officials became the first among such major central banks to cut its key rate, acting to prevent gains in the franc.
“Lower inflation in the short term has not really translated into an expectation of faster rate cuts,” DNB Bank ASA’s economists Kyrre Aamdal and Oddmund Berg said in a note. “This is because Norges Bank has an improved outlook for the Norwegian economy, highlighted by a higher forecast for mainland GDP and lower unemployment.”
The bank’s rate path still signals a marginal potential for a higher rate in the second quarter. That, as well as a slight increase in rate projections for 2025 and 2026, is “no doubt a hawkish surprise to most, including us,” Kristoffer Kjaer Lomholt, head of FX and corporate research at Danske Bank A/S said.
Traders in overnight swaps now price in a 47% chance of a Norwegian reduction by August, versus 45% at the start of the week.
Norway’s underlying inflation slowed to an 18-month low in February. Still, with the economy performing better than anticipated, the labor market staying tight and a new round of collective bargaining threatening to stoke wages, there’s little pressure for the central bank to pivot toward easing.
“We’re less worried that inflation will become entrenched at the previous high levels,” Wolden Bache said in the interview. “At the same time, inflation at 4.5% is still markedly above our target and high wage costs and the effects of the past depreciation of the krone will continue to keep inflation elevated going forward.”
Officials cut their forecast for so-called core consumer prices, but they also raised their forecast for economic growth for 2024.
–With assistance from Joel Rinneby, Harumi Ichikura, Stephen Treloar, Alastair Reed, Anton Wilen, Niclas Rolander, Christian Wienberg and Gina Turner.
(Updates with comments from Wolden Bache from third paragraph.)
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