Norges Bank Review: All Ready For December Cut?
No change in policy and little shift in rhetoric was the message from the Norges Bank’s latest verdict. After what was to some a surprise (and seemingly far from a formality) move in September, in which the Norges Bank cut is policy rate by a further 25 bp to 4.0%, we see no change at Nov 6 verdict, there are no fresh forecasts, albeit with the Board still suggesting a further 25 bp move at the Dec 18 decision. That December meeting will have both new forecasts and data for the Board to peruse, not least inflation and lending numbers, the latter possibly becoming a worry given the fresh slowing in corporate credit growth. But with inflation dynamics ever more friendly (Figure 2), we still think that the Norges Bank is being too cautious and that (on the basis of its own calculations), policy will be very restrictive through the projected timeframe out to 2028 and where we wonder why official forecast see inflation only just approaching the 2% target by the end of that period even though it is already there when looked at through shorter-term dynamics (Figure 1).
Figure 1: CPI Dynamics On Target in Adjusted Short-Run Perspective
Source: Stats Norway, CE, smoothed is 3 mth mov avg; core = CPI-ATE ex food
We remain a little less confident about the extent of easing into 2026 but after another 25 bp cut likely in December we then envisage further such moves every quarter through next year. That would still leave the policy rate roughly in the middle of the neutral rate range estimated by the Norges Bank. In other words, the Norges Bank will be merely taking its foot of the brake, rather than pressing on the accelerator. But inflation worries continue to dominate Norges Bank thinking, although there were some slightly more reassuring cost insights from the Board in both acknowledging that unemployment has increased somewhat, and capacity utilisation in the economy has declined to a normal level – previously it has suggested less spare capacity than previously thought.
While still a full ppt above target, targeted (CPI-ATE) inflation is being boosted by stubborn services inflation, this partly offsetting ever softer goods and imported inflation, the latter coming in spite of the weak Krona backdrop that continues to influence Board thinking excessively – albeit the latter having steadied, if not bounced of late. The hawkish line still being pursued by the Norges Bank still only helps bring inflation in its view back to target only 3 years hence, at least according to its updated MPR in September. In fact, on Nov 10, the next set if CPI data may show the targeted inflation rate (CPI-ATE) fall a notch from 3.0%, thereby undershooting Norges Bank projection by at least 0.3 ppt, this helping seal a cut next month.