NORGES BANK: Bache Reiterates Prior Guidance, But Some Dovish Excerpts Noted

Norges Bank Governor Wolden Bache's speech on "Monetary policy and the Norwegian economy" is here. They key guidance from the September/November rate decisions is unchanged: "Even though we have also eased monetary policy somewhat in Norway, the Committee judges that a restrictive monetary policy is still needed. " That said, some of the excerpts around the employment side of the mandate and the lower risk of wage price spirals in Norway lean marginally dovish. 

The broader outlook for Norges Bank implied pricing still looks for ~50bps of easing though the next 12 months, one 25bp cut more dovish than implied by the September MPR rate path.

Some highlights from the speech (MNI emphasis added)

• "The policy rate hikes have contributed to bringing down inflation, but inflation is still above target. The rise in import prices has come down, but domestic prices are still rising rapidly, which reflects, among other things, a sharp rise in business costs in recent years".
• "Norway’s coordinated wage determination system, where the bargaining parties place emphasis on employment, reduces the risk of wage-price spirals. This means that there is less need for monetary policy tightening than would otherwise have been required when there are prospects of high inflation. Monetary policy must react – even when inflation is triggered by a global cost shock"
• " Even though wage growth has been high in recent years, it has not resulted in a marked improvement in purchasing power. Wage growth was lower than inflation in both 2022 and 2023. When interest expenses increased at the same time, many people experienced a decline in their purchasing power"..."Since then, inflation has come down, and purchasing power has increased. Wages are expected to rise faster than prices in the years ahead. Combined with lower interest rates, this will strengthen peoples’ purchasing power."
• "Moreover, we place great emphasis on the aim of keeping employment high, as we have also done during the period of high inflation. We are therefore not attempting to bring inflation back to its target as quickly as possible. Had we focused only on inflation, we would have raised the policy rate more".