(Bloomberg) -- Norway’s central bank kept borrowing costs at the highest level in almost 16 years and repeated no imminent plans for easing due to risks posed by a weak krone and higher business costs.
Norges Bank held the key deposit rate at 4.5%, the highest since December 2008, as predicted by all analysts in a Bloomberg survey.
Governor Ida Wolden Bache said the rates will likely stay on hold “to the end of 2024,” in a statement on Thursday. The economic outlook remains in line with plans for gradual cuts from the first quarter.
“Norges Bank adopted a cautious stance at today’s meeting, making minimal changes to its guidance on future rate adjustments,” Karine Alsvik, an Oslo-based economist with Svenska Handelsbanken AB, said in a note to clients. “The market now seems to accept that we may have to wait until March for a cut, which, in our view, is the earliest possible timing.”
Norwegian policymakers, among the most aggressively hawkish in the developed world, have repeatedly delayed a pivot to easing as a weaker-than-expected currency and robust wage growth keep inflation expectations elevated.
The decision comes ahead of a string of interest-rate announcements from bigger peers due later on Thursday. It contrasts sharply with that of neighboring Sweden’s Riksbank, which delivered a half-point cut earlier in the day to help a faltering economy.
Traders in overnight swaps have scaled back their rate cut bets and now only price in a 28% chance of a reduction in January, with a full quarter-point cut priced in for March.
The Norwegian krone extended gains after the announcement, supported by the view that the nation’s policymakers will keep rates unchanged even as most of its G-10 peers ease policy. The currency traded 0.9% higher at 11.7836 per euro at 12:43 p.m. in Oslo on Thursday, near the strongest level in more than a week.
The krone also jumped against the Swedish krona, hitting a three-month high, after the Riksbank’s cut.
“The NOK remains one of the higher yielding currencies in G10, which could offer some support against the backdrop of a continuing global easing cycle,” Valentin Marinov, head of G-10 FX research at Credit Agricole CIB in London said.
Even as inflation has subsided faster than Norges Bank has expected, the krone remains one of the worst performers this year in the G-10 sphere of major currency jurisdictions, feeding imported inflation and pay pressures. Some analysts see Donald Trump’s victory in the US election as worsening the krone’s plight, raising the odds that Norway will skip easing altogether.
“Inflation has declined markedly, but the krone depreciation in recent years and the rapid rise in business costs are likely to restrain further disinflation,” the policymakers said. “The Committee judges that a restrictive monetary policy is still needed to bring inflation down to target within a reasonable time horizon.”
Average monthly wage growth eased to 5.2% in the third quarter, the lowest pace in more than a year, from 5.4% in the previous three months, the statistics office reported earlier on Thursday. The data “appears to be broadly in line with our expectations,” Wolden Bache said in an interview in Oslo, while urging caution in “putting too much emphasis on a single number.”
The Norwegian central bank noted that government spending plans imply slightly higher public spending in 2025 than in 2024, and a little higher than assumed in September.
--With assistance from Joel Rinneby, Stephen Treloar, Alastair Reed, Gina Turner and Naomi Tajitsu.
(Updates with comments from analyst, governor from fourth paragraph.)
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