Norway’s Norges Bank Holds at 4.25%, Guides Another 25bps in December with a Caveat

Norway’s central bank, the Norges Bank’s Monetary Policy and Financial Stability Committee unanimously held the policy benchmark interest rate at 4.25% and guided that another hike was likely in December, repeating what it said during its September meeting, bringing borrowing costs to the highest level since December 2008. However, this time they added with the caveat that if they become “more assured that underlying inflation is on the decline, the policy rate may be kept on hold.” Market pricing continues to be on the fence with about half of a 25bps hike priced.

Norway Norges Bank Headquarters Oslo

The bank had five consecutive hikes by December, equaling the sharpest hike since 2002.

In addition to this, the bank announced further hikes are likely in the future. They repeated guidance this morning by saying “Based on the Committee’s current assessment of the outlook, the policy rate will likely be raised in December” but with the caveat that if they become “more assured that underlying inflation is on the decline, the policy rate may be kept on hold.” said Ida Wolden Bache, governor of Norges Bank.

Norway benchmark interest rate

Norges Bank 4.25% as expected and guided to expect another 25bps hike in December.

Future Rate Path

“The future policy rate path will depend on economic developments. If the economy evolves as currently anticipated, the policy rate will be raised further in September”, Norges Bank Governor Ida Wolden Bache said.

Policymakers assessed that a higher policy rate than signaled in June may be required to rein in inflation if krone proves to be weaker than previously projected. On the other hand, if there is a sharp slowdown in the economy or inflation decelerates rapidly, the policy rate may be lower than envisaged in June, the bank said.


In order to return inflation to target, we have raised the policy rate substantially over the past couple of years. In September, the Committee signaled that there would likely be one additional rate hike, most probably in December. Our September forecast indicated that the policy rate would lie around 4.5 percent through next year. New forecasts have not been prepared for this monetary policy meeting, but we have assessed new information against the September forecasts.

Inflation in many trading partner countries is also high but receding. Since spring last year, many central banks have raised policy rates significantly. Recently, a number of central banks have kept rates on hold, and the market’s interpretation of the outlook indicates that policy rates among trading partners are getting close to peaking. Higher interest rates and elevated inflation have dampened growth among trading partners, although activity was somewhat stronger in the third quarter than we had envisioned.

 Governor Ida Wolden Bache at the press conference

Norway CPI Inflation Rate
  • The annual inflation rate in Norway eased to 3.3% in September 2023 from 4.8% in the previous month and below market expectations of 4%.
  • This was the softest increase since January last year, primarily driven by ongoing cost reductions in housing & utilities (-4.9% vs -1% in August), and a notable slowdown in food inflation to a fifteen-month low of 7.4% (vs 9%).
  • There was also a deceleration in prices of transport (6.3% vs 6.6%), clothing & footwear (6% vs 7.2%) and furnishings (6.4% vs 8.8%). In contrast, inflation accelerated for communication (5.4% vs 5.2%).
  • CPI adjusted for tax changes and excluding energy products, rose by 5.7% year-on-year in September, following a 6.3% hike in August.
  • Monthly, consumer prices dropped by 0.1%, after a 0.8% fall in the prior month and against market expectations of a 0.5% rise. Furthermore, the core inflation rate went up by 5.7% yoy, the lowest in 10 months, compared to 6.3% in the previous month.

Norges Bank Rate decision November 2023

Policy rate kept unchanged at 4.25 percent

Norges Bank’s Monetary Policy and Financial Stability Committee has unanimously decided to keep the policy rate unchanged at 4.25 percent.

The labour market is still tight, but pressures in the Norwegian economy are easing. Inflation is markedly above the 2 percent target. Consumer price inflation has moved down, but underlying inflation is high.

Persistently high inflation imposes substantial costs on society. The longer inflation remains high, the more costly subsequent disinflation may prove to be. On the other hand, the Committee does not want to raise the policy rate more than is necessary to bring inflation back to target within a reasonable horizon.

Monetary policy is now having a tightening effect on the economy, and the full effects of the past rate hikes are yet to be seen. In the Committee’s assessment, the policy rate is likely close to the level needed to tackle inflation, which provides the Committee with a little more time to assess whether there is a need to raise the policy rate further.

There will likely be a need to maintain a tight monetary policy stance for some time ahead. Whether additional rate hikes will be needed depends on economic developments. Since the September 2023 Monetary Policy Report, inflation has fallen more than expected, and economic activity has been somewhat lower than projected. On the other hand, the krone depreciation may contribute to sustaining inflation.

“Based on the Committee’s current assessment of the outlook, the policy rate will likely be raised in December. The Committee will have received more information about the inflation outlook ahead of its monetary policy meeting in December. If the Committee becomes more assured that underlying inflation is on the decline, the policy rate may be kept on hold”, says Governor Ida Wolden Bache.

New forecasts have not been prepared for this monetary policy meeting. Monetary Policy Report 4/23 will be published along with the monetary policy decision on 14 December 2023.

Rate effective from 3 November 2023:
Policy rate: 4.25 %
Overnight lending rate: 5.25 %
Reserve rate: 3.25 %

Norway Oil Fund

Norway’s $1.4tn wealth fund is the world’s largest sovereign wealth fund. It began in 1996 when oil revenue from the government was transferred to the fund for the first time. The mission of the fund is to provide financial wealth and stability for future generations of Norwegians once the oil revenues declines.

” The Government Pension Fund Global is saving for future generations in Norway. One day the oil will run out, but the return on the fund will continue to benefit the Norwegian population.” via Norway Fund

Norway’s oil fund owns on average 1.5 per cent of every listed company globally according to the FT.

Inflation and Fund Management

Inflation is identified as an issue at the oil fund, CEO Tangen, who warned that climate change will keep inflation high, said the fund was already using advanced algorithms to reduce trading costs and complexity and to boost internal productivity.

“The way we are putting money into the market, we are using AI models to predict when in the day, or over the month- or quarter-end we should deploy the capital. We are reducing trading activity because we are using AI models,” he said in an interview with FT.

“So, you can reduce the number of trades, and there are huge savings to be had there too,” he said, adding that: “It’s not like it’s on complete autopilot. We are monitoring it. It’s not like we’re the giving the fund to robots, and saying ‘hey, see you later’.”

Source: Norway, Sovereign wealth fund institute, FT

Clearly the small Nordic nation has been very successful in it’s investments and is prudent when comes to monetary policy.

2022 and January 2023 Return Update

At the end of January 2022 Norway’s $1.3tn oil fund had recovered in the first month of 2023 after its worst year since the global financial crisis. The fund had an annual return last year of minus 14.1 per cent, or NKr1.6tn ($159bn). It came with the biggest fall in Norwegian kroner terms on record. The sovereign wealth fund gained 5 per cent in January 2023, chief executive Nicolai Tangen told a press conference.

“It’s potentially one of those moments,” he said, referring to the rebound in 2009 after the financial crisis, “but the outcome this year is more uncertain than normal”.

The fund has also reduced its positions in the troubled Adani group of companies, Tangen said. The fund had holdings as of Monday of about $200mn in Adani companies, compared with its weight in the fund’s index of about $800mn.

The Fund is managed by Norway’s central bank, Norges Bank.  Norges Bank Investment Management ” aims to make the most of the fund’s two distinguishing characteristics, its long-term approach and its considerable size, to generate strong returns and safeguard wealth for future generations.”

Equities had a negative return of 15.3 per cent, bonds lost 12.1 per cent while property eked out a 0.1 per cent gain.

Worse performers were technology companies with the worst performers of all the fund’s equity investments were Amazon, Meta, Tesla, Alphabet and Apple as a result of the sell-off in big tech companies that led the pandemic-era rally in 2020-21.

Best performers were energy companies, with ExxonMobil, Chevron, TotalEnergies and Shell plus drugmaker Novo Nordisk for the fund in 2022.

The aim is of the fund is diversification and that was shown with the fund as a whole not losing value in 2022 despite the large negative return as huge inflows from Norway’s oil and gas revenues, boosted by Russia’s war against Ukraine, stood at record levels. Norway’s petroleum revenues soared as the Scandinavian country displaced Russia as the biggest supplier of gas to the EU.

The aim of the fund was diversification from oil and to invest in opportunity. “We invest in almost 9,000 companies and have investments in 77 countries.’ Says Norges Bank on their website.

Outside of Oslo Norges Bank has offices in Luxembourg, Tokyo, London, New York, Singapore and Shanghai to manage their investments. The spread gives you an idea of their focus.

Source: Norges Bank

From The Traders Community Research Desk