Norway: www.norges-bank.no/en/topics/Monetary-policy/Monetary-policy-meetings/2023/june-2023/
Policy rate raised to 3.75 percent
Norges Bank’s Monetary Policy and Financial Stability Committee decided to raise the policy rate by 0.50 percentage point to 3.75 percent. The Committee’s current assessment of the outlook and balance of risks implies that the policy rate will most likely be raised further in August.
Inflation is markedly above the target. Wage growth is set to be higher than in 2022. Activity remains high amid continued tightness in the labour market, but pressures in the Norwegian economy are easing.
The Committee judges that a higher policy rate than previously signalled is needed to bring inflation down to target. Inflation has been markedly higher than projected in the March Report. International interest rates have risen more than anticipated. Higher wage growth and a weaker krone than projected earlier will push up inflation ahead.
“If we do not raise the policy rate, prices and wages could continue to rise rapidly and inflation become entrenched. It may then become more costly to bring inflation down again”, says Governor Ida Wolden Bache.
The interest rate path ahead will depend on economic developments. If the krone turns out to be weaker than assumed or pressures in the economy persist, a higher-than-projected policy rate may be needed to bring inflation down towards the target. At the same time, the effects of the past rate hikes are not yet fully evident. Looking ahead, the tightening effect of high inflation and higher interest rates on household consumption is uncertain. If inflation declines more rapidly or there is a more pronounced slowdown in the Norwegian economy, the policy rate may be lower than currently envisaged.
The policy rate forecast has been revised up since the March Report and indicates a rise in the policy rate to 4.25 percent in the course of autumn.
The August policy rate decision will be presented at an event during “Arendalsuka” on 17 August (see Norges Bank’s calendar).
Rate effective from 23 June 2023:
Policy rate: 3.75 %
Overnight lending rate: 4.75 %
Reserve rate: 2.75 %
Swiss National Bank: www.snb.ch/en/mmr/reference/pre_20230622/source/pre_20230622.en.pdf
Bank of England: www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2023/june-2023
Monetary Policy Summary, June 2023
The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 21 June 2023, the MPC voted by a majority of 7–2 to increase Bank Rate by 0.5 percentage points, to 5%. Two members preferred to maintain Bank Rate at 4.5%.
At the time of the previous MPC meeting and May Monetary Policy Report, the market-implied path for Bank Rate averaged just over 4% over the next three years. Since then, gilt yields have risen materially, particularly at shorter maturities, now suggesting a path for Bank Rate that averages around 5½%. Mortgage rates have also risen notably. The sterling effective exchange rate has appreciated further.
The Committee is continuing to monitor closely the impact of the significant increases in Bank Rate so far. As set out in the May Report, the greater share of fixed-rate mortgages means that the full impact of the increase in Bank Rate to date will not be felt for some time.
Business surveys continue to suggest underlying quarterly GDP growth of around ¼% during the middle of this year. Indicators of household spending have tended to strengthen a little. LFS employment increased by 0.8% in the three months to April, higher than expected at the time of the May Report. The counterpart to this strong employment growth has been a further fall in the inactivity rate. The unemployment rate has been flat at 3.8%, in line with the May Report. The vacancies-to-unemployment ratio has fallen further but remains significantly elevated.
Annual growth in private sector regular Average Weekly Earnings (AWE) increased to 7.6% in the three months to April, 0.5 percentage points above the expectation at the time of the May Report. Three-month on three-month growth in this measure of pay has also picked up. Indications of future pay growth from the KPMG/REC survey and the Bank’s Agents suggest that AWE growth will ease over the rest of this year, however.
Twelve-month CPI inflation fell from 10.1% in March to 8.7% in April and remained at that rate in May. This is 0.3 percentage points higher than expected in the May Report. Services CPI inflation rose to 7.4% in May, 0.5 percentage points stronger than expected at the time of the May Report, while core goods price inflation has also been much stronger than projected. In general, news in the latter component is less likely to imply persistent inflationary pressures.
CPI inflation is expected to fall significantly further during the course of the year, in the main reflecting developments in energy prices. Services CPI inflation is projected to remain broadly unchanged in the near term. Core goods CPI inflation is expected to decline later this year, supported by developments in cost and price indicators earlier in the supply chain. In particular, annual producer output price inflation has fallen very sharply in recent months. Food price inflation is projected to fall further in coming months.
The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. Monetary policy will ensure that CPI inflation returns to the 2% target sustainably in the medium term.
The MPC recognises that the second-round effects in domestic price and wage developments generated by external cost shocks are likely to take longer to unwind than they did to emerge. There has been significant upside news in recent data that indicates more persistence in the inflation process, against the background of a tight labour market and continued resilience in demand. At this meeting, the Committee voted to increase Bank Rate by 0.5 percentage points, to 5%.
The MPC will continue to monitor closely indications of persistent inflationary pressures in the economy as a whole, including the tightness of labour market conditions and the behaviour of wage growth and services price inflation. If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required.
The MPC will adjust Bank Rate as necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit.
TLDRS:
- As other central banks act to fight inflation by raising interest rates, JPow tells Congress why the Fed needs to take more action, rather than doing so: www.federalreserve.gov/newsevents/testimony/powell20230621a.htm
- At least corporate media is telling us to go easy on him since he is making poetry?