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Macro Comment Norway

Macro Comment Norway — Norges Bank to lower its key policy rate path

Since September, several factors pull in the direction of a lower interest rate path from Norges Bank: eco-nomic growth appears to be both slower and more fragile than expected by Norges Bank, wage and price growth seem weaker, the NOK is stronger and money market premiums have stayed higher. On the other hand, international interest rate expectations have increased somewhat and the housing market has once again surprised on the upside. We believe Norges Bank will keep its policy rate on hold at the upcoming meeting, but lower the path for the key policy rate, signalling an increased likelihood of a rate cut in H1 2017.

Marius Gonsholt Hov, Economist | maho60@handelsbanken.no

Macro Comment Norway — Norges Bank to keep its policy rate on hold

Spiralling housing and consumer prices will probably make Norges Bank call off the announced rate cut at its upcoming meeting on September 22. However, we believe Norges Bank will keep its option of further easing ahead. We thus foresee that the key policy rate path will include a slight probability for a rate cut.

Marius Gonsholt Hov, Economist | maho60@handelsbanken.no

Macro Comment Norway — Housing shortage in Oslo?

The rapid acceleration of housing prices in Oslo is receiving a lot of attention. While it is true that housing prices have indeed risen rapidly over the past few months, the long-run price acceleration has been more muted than in other major cities, even though the building-to-population ratio has also been less favourable. We generally warn against setting fixed targets for housing construction needs based on simple rule-of-thumb calculations. Instead, we point to evidence that the supply side is actually well-functioning.

Marius Gonsholt Hov, Economist | maho60@handelsbanken.no

Macro Comment Norway — Two cuts are back on the table for Norges Bank this year

Norges Bank assumed a "Bremain" vote in its June monetary policy analysis, and was wrong. Moreover, Norges Bank had expected to see economic improvement from an oil-price-related confidence boost, but that will be challenged by the great uncertainty that lies ahead following the Brexit vote. Despite more expansionary fiscal policy in Norway, we believe that two more interest rate cuts are likely before the end of the year and that the key policy rate very well could drop into negative territory next year. We reiterate our expectation for the key policy rate path for the 2016-19 period.

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

Macro Comment Norway — Consequences of a Brexit for Norway

A vote in favour of a Brexit probably would spark substantial market volatility. However, the final outcome for the UK and the EU/eurozone likely will take several years to unfold. The uncertainty that would follow potentially could dampen consumption and investment in Norway. Foreign trade could be hurt, although we would not expect substantially. In our view, the trade-weighted NOK would likely weaken, but the result would depend on what happens to the oil price. A weakening of the real economy probably would trigger more expansionary monetary policy and Norges Bank would provide emergency liquidity, if required.

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

Macro Comment Norway — Norges Bank in wait-and-see mode

GDP growth was revised down in Q4 and economic momentum seems weaker than Norges Bank has assumed. Wage growth expectations and NOK strengthening suggest that Norges Bank's inflation forecast is also too optimistic. International interest rates have fallen further and money market spreads have increased. However, far more expansionary fiscal policy pulls in the other direction on the interest rate. On balance, the interest rate path should be little changed, but housing market fears mean that Norges Bank is currently in wait-and-see mode.

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