(Bloomberg) -- Norway’s central bank held its borrowing costs unchanged at a 16-year high and said the benchmark rate will most likely be reduced in March.
Norges Bank kept the key deposit rate at 4.5%, the highest since December 2008, as predicted by all analysts in a Bloomberg survey. It signaled a somewhat more cautious approach to easing on Thursday, projecting three quarter-point cuts by the end of next year, compared with four moves expected by analysts.
“Norges Bank is getting ready to normalize the policy rate, but the new normal is seen to be higher than previously,” Kjetil Martinsen, chief economist with Swedbank AB in Oslo, said in a note to clients. “In the short run, we think Norges Bank is correct, but question the restrictiveness further out in the projection horizon.”
The energy-rich Nordic nation is cementing its status as an outlier on monetary policy in the developed world, defying the trend of easing constraint. Norges Bank has repeatedly postponed rate cuts mainly due to krone weakness that feeds concerns over imported inflation, while robust wage growth in a tight labor market has also remained a risk.
The Norwegian krone rose after the announcement to trade 0.3% higher around 11.756 per euro. The krone has fallen around 4.5% this year, knocked by lower oil prices and geopolitical risk aversion.
Traders in overnight swaps still see 15% likelihood for a quarter-point reduction in January, and 28 basis points of cuts by the end of March, in total.
“Activity in the Norwegian economy appears to be holding up better than previously projected,” the central bank said in a statement. “On the other hand, inflation has moved closer to target, and inflation pressures appear to have been slightly more subdued than previously assumed.”
The rate path forecast “is little changed relative to the September forecast but indicates a somewhat smaller rate reduction in the coming years,” policymakers said.
In her introductory comment at news conference in Oslo, Governor Ida Wolden Bache specified the rate outlook as “consistent” with a decline to 3.75% by the end of 2025. She told Bloomberg she “wouldn’t characterize this as a significant shift in our communication.”
“Given that this was a question that we are asked many times, we wanted to state it in the introductory remarks,” she said.
On Wednesday, the US Federal Reserve lowered its key rate for a third straight time, while signaling a slower pace of easing next year. Earlier on Thursday, officials in neighboring Sweden delivered their fifth reduction in the benchmark rate this year, to 2.5%.
A string of recent data has backed the higher-for-longer stance of the Norwegian policymakers, with upward revisions to economic growth for past quarters, an improving outlook for businesses and a more expansive state budget.
While core price growth last month matched the projection by Norges Bank, the trade-weighted krone exchange rate is still somewhat below its estimate, suggesting it will keep preoccupying the officials.
Estimates for growth in the mainland economy were raised to 1.4% in both 2025 and 2026, while the underlying inflation rate is seen at 2.7% in each year, slightly lower than previously. The bank also nudged down its wage growth forecast for next year to 4.2% from 4.3% seen previously.
“We expect wage growth to come down going forward, but that it will remain higher or high compared to our assessment of productivity growth, which will mean that business costs will still rise and we expect that to slow down the further disinflation process,” Wolden Bache said.
--With assistance from Joel Rinneby, Alastair Reed, Christian Wienberg, Sara Sjolin, Christopher Jungstedt and Naomi Tajitsu.
(Updates with governor comments, analysts from second paragraph.)
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