Norway’s central bank pauses rate hiking

Bloomberg

Norway’s central bank paused monetary tightening while signalling a likely quarter-point increase in borrowing costs in March is still needed to bring inflation under control.
Norges Bank kept the key deposit rate on hold at 2.75% on Thursday, as forecast by the majority of economists in a Bloomberg survey.
Governor Ida Wolden Bache said the benchmark “will most likely be raised in March,” an outlook that would chime with guidance in December that the key interest rate would increase to “around 3%” this year.
“The policy rate will need to be increased somewhat further,” officials said. Even so, the rate “has been raised considerably over a short period of time, and monetary policy has started to have a tightening effect on the economy. This may suggest a more gradual approach to policy rate setting.”
Norway’s currency has weakened 7% over the past 12 months versus the euro.
, the biggest depreciation among G-10 peers together with the Swedish krona.

The krone pared losses after the decision, trading 0.4% weaker at around 10.72 against the euro as of 9:30 am in London.
Traders trimmed bets on rate hikes by June to 54 basis points, the lowest in more than a month, according to forward-rate agreements.
The decision doesn’t give any clear indication on whether Norway may be among the first in the G-10 sphere of major currency jurisdictions to end monetary tightening, after it led that group to start rate hikes in September 2021.
Marius Gonsholt Hov, an analyst at Svenska Handelsbanken AB in Oslo, said he believes the peak is at hand.
“Norges Bank will deliver another 25 basis-point rate hike in March, to 3%, but that is also the peak in our view,” Gonsholt Hov said. “Further ahead, we believe that Norges Bank will stick to 3% for the remainder of this year, to be sure that inflationary pressures are in fact abating.”
In contrast, Nordea Bank Abp’s Kjetil Olsen and Dane Cekov continue to forecast a last hike to 3.25% in June after a March move, saying they “still think developments in the economy going forward will be slightly better” than the central bank forecasts, “and there is also upside risk to wage growth.”