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Macro Comment Norway

Macro Comment Norway — Norges Bank to (slightly) lift its near-term policy rate path

In June, Norges Bank indicated that the policy rate would be increased by 25 basis points in September. Beyond that, Norges Bank expected two more rate increases throughout 2019, and a total of seven rate in-creases over the entire forecasting horizon (until the end of 2021). News since the June meeting has largely surprised on the upside. Against this backdrop, we believe Norges Bank will signal it is more likely than not with three rate hikes in 2019. But the outlook calls for a careful approach, and we believe Norges Bank will keep the longer end of the rate path intact.

Marius Gonsholt Hov, Senior Economist | maho60@handelsbanken.no

Macro Comment Norway — Norges Bank to stick with March strategy

In March, Norges Bank indicated that the policy rate would be lifted by September this year. Beyond that, the central bank expected six more rate increases by the end of 2021. Since March, inflation has once again disappointed; in isolation, this suggests a lower policy rate path. On the other hand, the real economy is showing few signs of faltering and the oil price and housing market have been stronger than expected. We believe Norges Bank will present a forecast for the policy rate that is little changed from March, still indicating that the first rate increase will come in September.

Kari Due-Andresen, Chief Economist Norway | kadu01@handelsbanken.no

Macro Comment Norway — Lower inflation target only affects interest rates long term

News since Norges Bank's December meeting suggests a slightly higher policy rate path. We believe the new path will indicate an interest rate hike sometime after summer. The lowering of the inflation target to 2.0 percent should not affect policy in the short term, but the neutral level for the policy rate is also equally lower, implying lower nominal rates in the long term. 

Kari Due-Andresen, Chief Economist Norway | kadu01@handelsbanken.no

Macro Comment Norway — Interest rate hikes brought forward

Compared with Norges Bank's expectations from September, several factors, particularly the weakened NOK exchange rate and the higher oil price, are pulling in the direction of a higher policy rate path from Norges Bank. However, we believe the Executive Board's judgement will contribute to a smaller upward revision than the economic factors suggest. In sum, we expect the new path to indicate that the first interest rate hike is brought forward roughly a quarter, implying that the first hike will be fully priced in by March 2019.

Kari Due-Andresen, Chief Economist Norway | kadu01@handelsbanken.no

Macro Comment Norway — Norges Bank basically on track

Compared with Norges Bank's expectations from June, different factors are simultaneously buoying and weighing on the interest rate path. However, the negative and positive shocks are close to offsetting each other. Accordingly, we believe Norges Bank's new path for the policy rate will not change much from the June trajectory, implying an unchanged policy rate until the second half of 2019.

Kari Due-Andresen, Chief Economist Norway | kadu01@handelsbanken.no

Macro Comment Norway — Norges Bank probably sees a lower likelihood of a cut

Since March, inflation has once again fallen short of Norges Bank's expectation, but the real economy has been stronger. We expect Norges Bank to keep its policy rate unchanged at 0.5 percent at its upcoming meeting but to lift its policy rate path slightly at the short end, thereby signalling a lower probability of the interest rate being cut in the near future. We believe that the longer end of the policy rate path will be low-ered slightly, as international interest rates have fallen since March.

Kari Due-Andresen, Chief Economist Norway | kadu01@handelsbanken.no