Norway Money (ann. var. of M2 %)

Money in Norway

Norges Bank meets expectations and hikes key rate by a further 25 basis points in May

At its 3 May meeting, the Executive Board of Norges Bank unanimously voted to deliver another 25 basis point increase, bringing the sight deposit rate to 3.25%. The move, which had been priced in by markets, followed March’s same-sized increase. The rate now stands at the highest level since 2008.

The decision largely reflected the Bank’s assessment that tighter monetary policy is needed in order to fight still-elevated inflation—partly due to a weaker krone. With regards to activity, the Bank noted that, despite slowing, the economy remains dynamic; the labor market is tight, and nominal wage growth is expected to be higher than in 2022 this year. In addition, the krone’s marked depreciation has added further upward pressure to prices. Consequently, Norges Bank deemed further tightening necessary to dampen price pressures and prevent a wage-price spiral.

With regard to forward guidance, the Bank’s tone was hawkish and largely unchanged from the previous communiqué; Norges Bank expects the sight deposit rate to reach 3.50% this summer. Furthermore, given the current risks to the inflationary outlook, Norges Bank hinted the sight deposit rate would most likely be raised again at the next meeting, scheduled for 21 June, with the decision to be announced the following day. Our panelists’ expectations align with this view.