The Norges Bank kept its main policy rate on hold at 0.50% in March, as expected by the consensus, James Pomeroy, economist at HSBC said in note.

“Given the recent weakness in the inflation data, the market had been expecting quite a dovish rhetoric from the central bank. However, the Norges Bank’s triple mandate of inflation, growth and financial stability means that, at least in the short term, the risks surrounding the latter two offset the weakness in inflation. We continue to expect the Norges Bank to remain on hold until at least end-2018. 

“The Norges Bank was fully expected to keep its key policy rate at 0.50% today, and it delivered that. The market was expecting some dovish rhetoric on the back of the lower inflation rates in the past few months, but the statement was quick to counteract that by stressing the higher growth prospects and the growing financial stability risks on the back of very strong house price growth.

“The Norges Bank are very transparent with their decisions, and outlined a slightly lower expected rate path over the next couple of years (chart 1). The implied probability of a rate cut in the future is still very low and unchanged. The extra detail on the drivers of the change in the policy rate profile is useful and shows the exact nature of the Norges Bank’s thinking (chart 2).

“Clearly, the Norges Bank’s lower inflation forecasts are the main reason for a lower rate path, but this has been offset by a weaker NOK, greater financial stability risks, higher rates overseas and higher growth expectations in Norway. So, if it wasn’t for the disappointment in inflation, the Norges Bank might have been forecasting a rate rise by the end of Q2 2017 and may have had to consider a rate rise even at this meeting.