As we expected, Norges Bank left the policy rate unchanged last week. After all, the interest rate path from December did not necessarily imply an interest rate cut in March. The new interest rate path now signals slower and smaller interest rate cuts over the projected time horizon until the end of 2027. The policy rate is still expected to be lowered this year, but Norges Bank is not giving any details on the timing, Commerzbank’s FX analyst Antje Praefcke notes.
NOK to remain stable in the coming months
“Norges Bank justifies its stance by saying that inflation has picked up and been markedly higher than expected; if the policy rate is lowered prematurely, prices may continue to rise rapidly. In this respect, Norges Bank is reacting to the high inflation rates at the beginning of the year. We had already stated that inflation would have to surprise on the downside sharply in the coming months – which is not expected – for it to fall to the inflation target over the course of the year.”
“The interest rate path is now around 25 basis points higher than before over the entire forecast horizon. Similar to other central banks, Norges Bank sees major uncertainty in the trade conflict and the possibility of rising tariffs. The exact impact on prices and growth can only be estimated, not predicted. Imported inflation is likely to rise, but weaker global demand and a stronger krone could dampen price pressure.”
“I think that Norges Bank will not lower rates until June at the earliest, when it presents its new monetary policy report. Until then, it will have three more months of inflation data (March to May) and more information about the trade conflict and its economic impact. The krone should remain stable in the coming months and be able to defend its gains, with a slight upward trend.”
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