BofA sees Norges Financial institution holding charges, flags hawkish dangers

Financial institution of America (BofA) analysts projected that Norges Financial institution, Norway’s central financial institution, would keep its key rate of interest at 4.50% this week. The choice relies on latest information that leans barely extra hawkish in comparison with Norges Financial institution’s forecasts.

Regardless of a dovish shock in December’s core inflation determine, which was 10 foundation factors under expectations, a number of components may exert hawkish strain. These embrace a repricing of worldwide charges, significantly in america, rising vitality costs, a weaker Norwegian Krone (NOK) than anticipated, and strong home costs coupled with a resilient labor market.

BofA anticipates that Norges Financial institution will sign a possible price minimize in March however will use cautious language to stop any dovish interpretations that may undermine the NOK. Whereas a brand new charges path just isn’t anticipated to be launched, the financial coverage evaluation is more likely to spotlight some hawkish dangers.

The Committee has proven a extra nuanced view on inflation prospects and coverage trade-offs, softening their beforehand hawkish stance on the inflation outlook in December. They made a big revision to core inflation forecasts and acknowledged shortcomings within the central financial institution’s fashions to foretell disinflation traits.

With present charges nicely above the financial institution’s estimates of impartial (1.7-2.7% nominal), BofA stays satisfied {that a} gradual cycle of price reductions is on the horizon, beginning with a 25 foundation level minimize in March. Though the bottom case predicts 4 cuts all year long, there’s a rising risk that it could possibly be restricted to a few, significantly if the Federal Reserve’s easing expectations keep subdued.

When it comes to foreign money affect, BofA expects minimal quick results from the upcoming Norges Financial institution assembly, viewing it largely as an interim occasion. Nevertheless, they counsel that the latest upward repricing of Norges Financial institution’s terminal price could have been extreme, particularly when in comparison with the European Central Financial institution, given the comparatively steady FX circumstances. BofA maintains a bearish stance on the NOK in the interim.

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