Key Moments
- Nordea’s Kjetil Olsen expects Norges Bank to keep its key policy rate at 4.5% next Thursday, in line with the September rate path.
- Mixed signals are highlighted, with higher core inflation and rising oil, gas, and electricity futures set against a stronger NOK and weaker retail sales.
- Olsen does not anticipate rate cuts before inflation clearly converges to the 2% target, which he does not expect to happen before 2028.
Policy Stance Seen Unchanged
Nordea economist Kjetil Olsen anticipates that Norges Bank will leave its key policy rate at 4.5% next Thursday, aligning with the rate path communicated at the September meeting. He expects the central bank’s overall communication to remain broadly consistent with its earlier guidance.
Olsen highlights that the latest information set is mixed. On one side, he points to a slight pickup in core inflation and an increase in energy-related prices. On the other side, he notes a firmer NOK and weaker retail sales as counterbalancing forces.
Inflation Dynamics and Market Factors
Olsen underscores that developments in energy markets have added upward pressure to the inflation outlook. He emphasizes moves in oil, gas, and electricity-related prices as part of this picture.
| Factor | Recent Development |
|---|---|
| Core inflation | Slightly higher |
| Oil and gas prices | Have risen |
| Electricity futures | Have risen |
| NOK exchange rate | Stronger |
| Retail sales | Softer |
According to Olsen, currency strength works in the opposite direction of higher energy prices, with the stronger NOK mitigating some of the inflationary impact. Softer retail sales are also cited as evidence of weaker domestic demand.
Rate Path Assessment
Discussing how Norges Bank might adjust its projected rate path if it were updated today, Olsen states that any changes would likely be limited. He suggests that the near-term segment of the path would probably be almost identical to the September projections, with only a marginally lower profile at the front end and a somewhat lower trajectory further out.
He reinforces the view that the central bank will remain cautious about easing. In his assessment, Norges Bank will require firm confirmation that inflation is moving toward its 2% target before it begins to signal cuts in the key policy rate.
Conditions for Future Rate Cuts
Olsen stresses that the timing of potential rate reductions hinges on clear progress toward the inflation target. He argues that rate cuts are unlikely before inflation shows a convincing convergence to 2%, a development he does not foresee occurring before 2028.
Original Analyst Commentary (Selected Quotes)
“Norges Bank will keep its key rate unchanged at 4.5% next Thursday, in line with the rate path presented at the September meeting.”
“In addition, oil and gas prices have risen, as have electricity futures.”
“On the other hand, the stronger NOK points in the opposite direction.”
“Overall, if Norges Bank were to publish a new rate path today, we believe it would be very close to the September path at the front end, perhaps marginally lower, but somewhat lower further out.”
“We believe Norges Bank needs to see clear evidence that inflation is converging towards the 2% target before signalling rate cuts.”
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