Research
Tip: To personalise the research list, click the gear symbol above.


Choose type:


Fast Comment NorwayNorges Bank sticks to its strategy as we expected; first rate hike expected in September

  1. Policy rate unchanged at 0.5 percent; policy rate path also virtually unchanged
  2. Oil price and housing market lift policy rate trajectory, whereas inflation and global outlook burden
  3. Norges Bank expects seven rate hikes by year-end 2021; we believe it will manage only three
Policy rate unchanged at 0.5 percent; policy rate path also virtually unchanged
As we expected, Norges Bank decided to keep the policy rate unchanged at 0.5 percent during today’s policy meeting. Also as we expected, Norges Bank’s forecast for the policy rate (the policy rate path) was virtually unchanged from March (at most, it was 6 basis points higher). The central bank still foresees the policy rate being raised by 25 basis points in September; after that, it still expects the policy rate to be raised twice per year, thereby lifting it to 2.25 percent in December 2021.
Oil price and housing market lift policy rate trajectory, whereas inflation and global outlook burden
Norges Bank highlighted that inflation had been weaker than expected and that the outlook for Norway’s trading partners, both with respect to economic growth and interest rate expectations, was somewhat more subdued than expected in March. Conversely, the spot and forward oil prices were considerably higher, which the central bank judged would contribute to buoying economic growth in Norway ahead. Also, the housing market had been stronger than expected. Norges Bank's focus and weighing of the different factors affecting the policy rate outlook were more or less exactly as we had foreseen. Looking ahead, the central bank now forecasts a slightly lower path for inflation; however, this is not due to weaker domestic cost pressure and wage growth expectations are virtually unchanged. It is rather an expectation of a somewhat stronger NOK exchange rate, burdening imported inflation. On the other hand, Norges Bank’s expectations of economic growth and labour market are stronger than in March. This is due to a higher oil price and a stronger housing market, as well as a lowered forecast for potential growth in the mainland economy.
Norges Bank expects seven rate hikes by year-end 2021; we believe it will manage only three
In our view, today’s announcement from the central bank was just as expected. The central bank appears determined to raise the policy rate soon, in part to send a signal to the housing market that the policy rate is indeed on the rise. The board even highlights this message in its judgement of the outlook, saying that “an increase in the interest rate level may contribute to restraining house price inflation and debt growth”. Given Norges Bank’s assessment and strategy, we expect to see the first interest rate hike from the central bank in September. However, we still believe the central bank is too optimistic when it comes to economic growth abroad, and in particular we believe Norges Bank’s wage growth expectations are too high. Accordingly, our expectation is that there will be at most three interest rate hikes by the end of next year; after that, we expect the central bank will have to halt further rate hikes.


Source: Macrobond

Disclaimer

Kari Due-Andresen

Chief Economist Norway

Norway and UK

kadu01@handelsbanken.no

Latest analyses

2018-06-25

Morgenrapport Norge

2018-06-21

UK Comment

2018-06-21

Fast Comment Norway