MNI NORGES WATCH: Steady Policy, Easing Guidance Seen Axed

The Norges Bank is widely expected to hold its policy rate at 4% on March 26, following in the footsteps of other European central banks by leaving policy on hold but rewriting guidance and forecasts to de-emphasise future easing in the wake of the Iran war.

With the energy shock pushing up on inflation, and increased oil and gas prices driving up foreign rate expectations, the monetary policy report's forecasts should include a new rate path without cuts, with remaining uncertainty centring on whether and to what extent it will include tightening.

The new guidance could emphasise vigilance over higher inflation and Governor Ida Wolden Bache will inevitably face questions at the press conference about the likelihood of tightening if policy is left unchanged.

While a rise in energy prices will not hit the target CPI-ATE inflation directly it will feed through via other channels, including imported goods, although recent appreciation in the krone should mitigate this. The upward effect could also materialise in costs for manufacturing and service sector firms as well as in wage negotiations. 

In February the consumer price index increased 2.7%, while CPI-ATE, which excludes energy products, showed a 3.0% rise. This showed stickier inflation than the December Monetary Policy Report's forecast CPI-ATE at 2.6% in February before falling to 2.4% in 2027 and 2.2% in 2028, notably never fully returning to the 2.0% target.

HIKE PRICING

Markets are also pricing in a 20% chance of a raise in rates. The central bank surprised markets last year with the timing of its first cut as Wolden Bache has questioned the need for meeting-specific guidance, so a hike cannot be ruled out. (See MNI INTERVIEW: Norges Bank Head Tilts Against Precise Guidance)

The Bank's January Monetary and Financial Stability Committee held the policy rate at 4%, referencing its December quarterly rate forecast which implied one or two cuts in 2026. 

At the press conference, Wolden Bache noted that underlying inflation had "been close to 3% for some time," meaning that "a restrictive monetary policy [was] still needed."