(Bloomberg) -- Norway’s central bank may be about to show more caution on the timing of a prospective interest-rate cut after the krone weakened and data pointed to resilience in the economy. 

Investors will look to see if Norges Bank policymakers are still penciling in September for the first reduction in borrowing costs when their latest monetary decision is published on Friday. 

As part of that announcement, Governor Ida Wolden Bache and colleagues are widely expected to keep the benchmark interest rate at 4.5% — the highest since 2008 — for a third straight meeting.

With the Federal Reserve shirking from any imminent easing — an outlook confirmed on Wednesday — Norges Bank has faced renewed currency weakness that risks stoking import prices at a time when inflation, while slower than expected, remains close to 4%.

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That backdrop, along with a brightening growth outlook, has boosted speculation of a prolonged pause before any rate cut materializes. 

“The recent data flow leans on the hawkish side, with resilient economic activity, wage negotiations, and krone weakness likely offsetting the downside inflation surprise,” said Bank of America economist Alessandro Infelise Zhou. 

After a revision, the economy’s level of output is higher than officials had forecast. Meanwhile labor unions clinched a deal with employers last month for a wage increase of 5.2%, slightly exceeding policymakers’ projections for annual pay growth.

The krone, the third-worst performer this quarter among the world’s 10 most-traded currencies, is about 3% lower in trade-weighted terms than Norges Bank anticipated in March.  

Officials reiterated then that they are prepared to raise borrowing costs again if elevated cost inflation or a weaker-than-expected exchange rate keeps inflation high for longer than forecast.

Traders in overnight swaps now price in a slight chance of a hike this week, while they see a 43% probability of a reduction by September. That compares with 90% seen at the start of April.

“Risks have likely tilted more toward postponement of rate cuts – or even increased chance of a rate hike,” Kjetil Martinsen, Oslo-based chief economist at Swedbank AB, said in a report.

Some forecasters, such as Nordea Bank Abp, have delayed projections for a first cut in borrowing costs to next year.

For Infelise Zhou at BofA, Norges Bank is still likely to conclude that the economy needs easing sooner than that. He expects two rate reductions this year, starting in the third quarter — an outlook that chimes with with the median forecast in Bloomberg’s latest survey of economists

“Norges Bank is probably overestimating inflation in the second half of 2024,” he said.

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