Will the Norges Bank respond to falling inflation?

We think that the Norges Bank will leave monetary policy unchanged at its meeting next week. While inflation has fallen much more quickly than policymakers expected, accelerating house prices are a concern. So for now, we expect the Bank to leave its interest rate forecast broadly unchanged. This would signal that a rate cut is slightly more likely than a rate hike this year. Activity surveys rising, but inflation falling Quarterly growth in mainland GDP picked up from 0.1% in Q3 to 0.3% in Q4, which was in line with the Norges Bank’s December estimate. But the official data for January have been mixed. While three-month-on-three-month growth in manufacturing output rose to a 29-month high, growth in retail sales slowed. Nevertheless, timelier activity surveys generally suggest that the economic recovery will accelerate. The Norges Bank’s output expectations indicator, based on responses to its Regional Network Survey, points to annual mainland GDP growth picking up from 1.2% in Q4 to about 2.0%.