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Fast Comment NorwayNorges Bank hikes the policy rate and pulls the next hike forward

  1. Policy rate hiked to 1.25% in June, Norges Bank sees next hike by December
  2. Domestic factors pulled up short-term, while global risks pulled down longer-term
  3. Norges Bank’s sees 1-2 more hikes, we believe the June hike was the last
Policy rate hiked to 1.25% in June, Norges Bank sees next hike by December
As expected, Norges Bank hiked the policy rate by 25 basis points to 1.25 percent today. Also as we expected, Norges Bank pulled forward the next policy rate hike so that a hike to 1.50 percent is now fully priced in by December this year in the central bank’s new policy rate trajectory. The longer end of the policy rate trajectory was lowered slightly, well in line with our expectation. The central bank now expects a likelihood of some 50 percent that the policy rate will be lifted to 1.75 percent next year, and the likelihood increases to 65 percent by the end of 2022. To put it more clearly, the central bank expects to hike the policy rate once more this year, but it has become less certain the policy rate will reach 1.75 percent.
Domestic factors pulled up short-term, while global risks pulled down longer-term
The reasons for why Norges Bank had slightly lifted its policy rate path in the shorter end and lowered it in the longer end, were also in line with our expectation. Stronger domestic demand and a weaker-than-expected NOK exchange rate contributed to lifting the policy rate path in the short term. On the other hand, increased global risks, lower oil prices and lower interest rate expectations with our trading partners contributed to lowering the policy rate trajectory from next year onward.
Norges Bank’s sees 1-2 more hikes, we believe the June hike was the last
While the central bank now expects to hike the policy rate 1-2 times more, we expect the June hike to be the last. We believe the global cooling and persisting risks will prevent Norges Bank to hike the policy rate any further. If so, the policy rate has reached its top at 1.25 percent in this economic cycle.


 


Disclaimer

Kari Due-Andresen

Chief Economist Norway

Norway and UK

kadu01@handelsbanken.no

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