Norges Bank is not going to bring forward first interest rate cut – Commerzbank

The Norwegian Central Bank won’t bring forward its first interest rate cut from March to January at its meeting on Thursday. In November, it did not even hint at an early rate cut, but postponed the decision on this until December when more information and data was available, Commerzbank’s FX analyst Antje Praefcke notes.

Norges Bank unlikely to start the rate-cutting cycle before March

"The Committee is concerned with the possibility that if the policy rate is lowered prematurely, inflation could remain above target for too long. On the other hand, an overly tight monetary policy could contract the economy more than needed. When we set the policy rate, we have to balance these trade-offs. The economic outlook is uncertain. The Committee will have received more information about economic developments ahead of its next monetary policy meeting in December, when new policy rate forecasts will be presented."

“The disinflation process seems to be slowing. The firms expect a slight upturn in activity in the winter and first quarter of 2025, except in the construction and retail sectors. The proportion of companies complaining of full capacity utilization and problems recruiting staff is unchanged. They have also revised their expectations for wage growth upwards from 4.3% to 4.5% for 2025. The krone had appreciated in the meantime since the last interest rate meeting, but is now trading again at similar levels we saw back then.”

“What does Norges Bank make out of this mix for its forecasts and the interest rate path on Thursday? I think it will announce in the statement that the next rate step will be down. But I don't think the data is sufficient for Norges Bank to move immediately from “neutral” to a rate cut in January. Given the rather positive outlook for economic activity, employment and wage growth, as well as the recent inflation trend, Norges Bank is unlikely to start the rate-cutting cycle before March."