The Norwegian Central Bank (Norges Bank) is expected to maintain its current policy stance at its upcoming meeting on Thursday, resisting calls for an earlier rate cut. According to Commerzbank FX analyst Antje Praefcke, the first interest rate reduction is still more likely to happen in March 2025, rather than January.
Key Insights
- Balancing Trade-Offs
- Norges Bank’s primary concern is finding the right balance:
- Cutting rates too early could prolong inflation above the target.
- Keeping policy too tight risks unnecessary economic contraction.
- Policymakers emphasized the importance of assessing more data before deciding, indicating a cautious approach to rate adjustments.
- Norges Bank’s primary concern is finding the right balance:
- Economic Developments and Inflation Trends
- The disinflation process has slowed.
- Business activity is expected to improve slightly during the winter and Q1 2025, except in sectors like construction and retail.
- Wage growth forecasts for 2025 have been revised upwards from 4.3% to 4.5%, and capacity utilization issues remain consistent among firms.
- Currency Performance
- The Norwegian krone (NOK) had appreciated since the last interest rate meeting but has since returned to previous levels.
What to Expect on Thursday
- Rate Path Guidance: Norges Bank is likely to signal that the next rate move will be a cut, but without committing to a January reduction.
- Outlook for March: The positive outlook for employment, wage growth, and recent inflation trends supports delaying the start of the rate-cutting cycle until March 2025.
Conclusion
Given the economic backdrop and the cautious tone of policymakers, Norges Bank is unlikely to shift from its neutral stance to rate cuts immediately. March 2025 remains the most probable starting point for the easing cycle. Market participants should keep an eye on Thursday’s statement for more clarity on the central bank’s forecasts and future rate path.
Leave a Reply