Rate decision January 2023
At its meeting on 18 January 2023, the Committee decided to keep the policy rate unchanged at 2.75 percent.
Policy rate kept unchanged at 2.75 percent
Norges Bank’s Monetary Policy and Financial Stability Committee has unanimously decided to keep the policy rate unchanged at 2.75 percent.
Consumer prices have risen sharply, and inflation is markedly above the target. Activity in the Norwegian economy is high, and the labour market is tight. High inflation and higher interest rates are weakening household purchasing power, and many firms expect a fall in activity ahead.
Based on the Committee’s current assessment of the outlook, the policy rate will need to be increased somewhat further to bring inflation down towards the target. Since Monetary Policy Report 4/22, the labour market appears to have been a little tighter than projected. Continued pressures in the Norwegian economy may contribute to keeping inflation elevated. These developments could suggest raising the policy rate at this meeting. On the other hand, there are prospects that energy prices will be lower than expected earlier, and global inflationary pressures appear to be easing. The policy rate has been raised considerably over a short period of time, and monetary policy has started to have a tightening effect on the economy. This may suggest a more gradual approach to policy rate setting.
The outlook for the Norwegian economy is more uncertain than normal.
“The future policy rate path will depend on economic developments. The policy rate will most likely be raised in March”, says Governor Ida Wolden Bache.
Rate effective from 20 January 2023:
- Policy rate: 2.75 %
- Overnight lending rate: 3.75 %
- Reserve rate: 1.75 %
Contact:
Press telephone: +47 21 49 09 30
Email: presse@norges-bank.no
13:39
Press conference in connection with policy rate decision January 2023 (In Norwegian)
The policy rate has been kept unchanged at this meeting
Introductory statement by Governor Ida Wolden Bache at press conference following announcement of the policy rate.
Chart 1: The policy rate has been kept unchanged at this meeting
Norges Bank’s Monetary Policy and Financial Stability Committee has unanimously decided to keep the policy rate unchanged at 2.75 percent.
Norges Bank’s task is to keep inflation low and stable. The operational target is inflation of close to 2 percent over time. We are also mandated to help keep employment as high as possible and to promote economic stability.
Price stability is crucial for maintaining a well-functioning economy. When prices rise suddenly and unexpectedly, those with small margins are normally the hardest hit. The main contribution monetary policy can make to promoting high employment over time is to ensure low and stable inflation.
Chart 2: Inflation is too high
Over the course of last year, inflation surged both globally and in Norway, and since last spring, we have raised the policy rate quickly.
The aim of our policy rate hikes is to bring down inflation. At the same time, we want to avoid a situation where the economy contracts more than what is necessary to bring down inflation.
Inflation is now around 6 percent and markedly above the inflation target. The 12-month rise in the consumer price index has edged down from the very high levels in autumn, but if we disregard energy prices, inflation has been fairly stable in recent months. Price developments have been in line with what we expected when we presented our forecasts in December.
Chart 3: Unemployment has remained low
Activity in the Norwegian economy is high, and unemployment is still very low. At the same time, high inflation and higher interest rates are reducing household purchasing power, and many firms expect a fall in activity ahead.
Based on the Committee’s current assessment of the outlook, the policy rate will need to be increased somewhat further to bring inflation down towards the target.
The labour market appears to have been a little tighter than projected in December. Continued pressures in the Norwegian economy may contribute to keeping inflation elevated. These developments could suggest raising the policy rate at this meeting.
On the other hand, there are prospects that energy prices will be lower ahead than we envisaged in December, and there are signs that inflation has peaked in many countries. The policy rate has been raised considerably over a short period of time, and monetary policy has started to have a tightening effect on the economy. This may suggest a more gradual approach to policy rate setting. We have therefore decided to keep the policy rate unchanged at this meeting.
Chart 4: Policy rate likely to be raised further in March
The future policy rate path will depend on economic developments. The outlook is more uncertain than normal, but we will most likely raise the policy rate in March, when we also present this year’s first Monetary Policy Report with new forecasts for the Norwegian economy.
The Committee has also taken its decision on the countercyclical capital buffer and has unanimously decided to maintain the countercyclical buffer rate at 2.5 percent, effective from 31 March 2023.
Monetary policy assessment
Norges Bank’s Monetary Policy and Financial Stability Committee has decided to keep the policy rate unchanged at 2.75 percent. Based on the Committee’s current assessment of the outlook and balance of risks, the policy rate will most likely be raised in March.
In Monetary Policy Report 4/22, which was published on 15 December, the Committee’s assessment was that the policy rate would most likely be raised further in 2023 Q1. The policy rate forecast indicated a policy rate of around 3 percent in 2023. There were prospects that inflation would fall and approach the target further out. Unemployment was projected to increase somewhat, albeit from a low level.
Easing global inflationary pressures
After a period of soaring global consumer price inflation, there are now signs that inflation has peaked in many countries. Electricity and gas prices have fallen sharply, and futures prices are markedly lower than assumed in the December Report. Global freight rates have fallen further and are approaching pre-pandemic levels.
Øre/kWh
Source: Refinitiv Datastream
High inflation and higher interest rates have had a dampening effect on economic growth among trading partners. Economic activity appears to have been somewhat higher than projected in the December Report. Lower energy prices are reducing costs for households and firms and may help to cushion the fall in activity in Europe ahead. In China, most pandemic-related restrictions have now been removed, and it is uncertain how this will affect the global economy in the near term.
Central banks in many trading partner countries raised policy rates further in December. Market policy rate expectations are little changed but have risen slightly in the euro area. In Norway, near-term policy rate expectations have edged higher. The krone has been somewhat weaker than projected in the December Report.
Policy rates and estimated forward rates. Percent. 17 January 2023 (solid line) and MPR 4/22 (broken line)
Sources: Bloomberg, Refinitiv Datastream and Norges Bank
Higher-than-expected activity in the Norwegian economy
Activity in the Norwegian economy continued to increase towards the end of 2022, and mainland GDP in November was higher than projected in the December Report. Household consumption pushed up growth and has been higher than expected, with car purchases making a particular contribution to the increase in consumption. The number of new car registrations was very high towards the end of 2022 but appears to have fallen considerably after the turn of the year. House prices were higher than projected in December, but the inventory of unsold existing homes is still high, and new home sales have fallen further.
GDP for mainland Norway. Seasonally adjusted. Index. February 2020=100
Sources: Statistics Norway and Norges Bank
The labour market is still tight. Registered unemployment remained at 1.6 percent in December, while employment has risen a little. The trend in new job vacancies has declined further.
Registered fully unemployed as a share of the labour force. Seasonally adjusted. Percent
Sources: Norwegian Labour and Welfare Administration (NAV) and Norges Bank
Inflation broadly as projected
Inflation is high. The 12-month rise in the consumer price index (CPI) has moved down recently and was 5.9 percent in December, which reflects a slower rise in energy prices. The 12-month rise in the CPI adjusted for tax changes and excluding energy products (CPI-ATE) increased to 5.8 percent in December. Other indicators of underlying inflation edged higher in December. Consumer price inflation has been broadly in line with that projected.
Consumer prices. Twelve-month change. Percent
Sources: Statistics Norway and Norges Bank
Policy rate likely to be raised further in March
The operational target of monetary policy is annual consumer price inflation of close to 2 percent over time. Inflation targeting shall be forward-looking and flexible so that it can contribute to high and stable output and employment and to countering the build-up of financial imbalances.
Consumer prices have risen sharply, and inflation is markedly above the target. Activity in the Norwegian economy is high, and the labour market is tight. High inflation and higher interest rates are weakening household purchasing power, and many firms expect a fall in activity ahead.
Based on the Committee’s current assessment of the outlook, the policy rate will need to be increased somewhat further to bring inflation down towards the target. Since the December Report, the labour market appears to have been a little tighter than projected. Continued pressures in the Norwegian economy may contribute to keeping inflation elevated. These developments could suggest raising the policy rate at this meeting. On the other hand, there are prospects that energy prices will be lower than expected earlier, and global inflationary pressures appear to be easing. The policy rate has been raised considerably over a short period of time, and monetary policy has started to have a tightening effect on the economy. This may suggest a more gradual approach to policy rate setting.
The outlook for the Norwegian economy is more uncertain than normal. The future policy rate path will depend on economic developments. If economic pressures persist and signs emerge that inflation will remain high for longer than projected, a higher policy rate may be needed than envisaged earlier. If inflation falls faster or unemployment rises more than projected, the policy rate may be lower than projected in December.
The Committee decided unanimously to keep the policy rate unchanged at 2.75 percent. Based on the Committee’s current assessment of the outlook and balance of risks, the policy rate will most likely be raised in March.
Ida Wolden Bache
Pål Longva
Øystein Børsum
Ingvild Almås
Jeanette Fjære-Lindkjenn
18 January 2023
Countercyclical capital buffer unchanged
The decision was made last year to raise the countercyclical buffer rate to 2.5 percent, effective from 31 March 2023. At its meeting on 18 January, Norges Bank’s Monetary Policy and Financial Stability Committee decided to maintain this requirement.
The countercyclical capital buffer is intended to strengthen banks’ solvency and mitigate the risk that banks amplify an economic downturn. If a downturn will or could cause a marked reduction in credit supply, the countercyclical capital buffer rate should be lowered.
Activity in the Norwegian economy is high, and the labour market is tight. High inflation and higher interest rates are weakening household purchasing power, and many firms expect a fall in activity ahead. The outlook for the Norwegian economy is more uncertain than normal.
Property prices have risen substantially in recent years, and many households are highly indebted. Such vulnerabilities may amplify a downturn. House prices fell through autumn 2022, which has dampened household credit growth. Selling prices in the commercial real estate market have fallen since summer 2022 on the back of higher yields. The price decline is being cushioned by higher rents.
Creditworthy firms and households appear to have ample access to credit, even if there are some signs of a tightening of banks’ credit standards. Risk premiums on new corporate bond issues rose markedly in 2022, particularly for commercial real estate firms.
Norwegian banks satisfy the capital requirements and are highly profitable. Analyses in Financial Stability Report 2022 show that banks are resilient and able to absorb losses and maintain lending in a severe economic downturn. The countercyclical capital buffer rate of 2.5 percent contributes to this resilience.
The Committee unanimously decided to keep the countercyclical capital buffer rate at 2.5 percent.
Ida Wolden Bache
Pål Longva
Øystein Børsum
Ingvild Almås
Jeanette Fjære-Lindkjenn
18 January 2023
Norges Bank sets the countercyclical capital buffer rate each quarter. From 2023, the rate will be published together with the policy rate decision in January and August and together with Financial Stability Report in May and November. The next decision on the countercyclical capital buffer will be published on 10 May, together with Financial Stability Report 2023-1.