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Macro Comment Norway

Macro Comment Norway — Only negligible changes to the key policy rate path ahead

We expect that Norges Bank will keep its policy rate on hold this week and that it will make only negligible changes to its key policy rate path. Our expectations are underpinned by our view that the surprising drop in inflation should be counterbalanced by somewhat stronger growth momentum combined with housing market concerns that are still elevated. Taken altogether, we believe the shorter end of the curve is likely to continue to point to a slight probability of another rate cut ahead. However, the longer end of the curve may be lifted to some degree due to a further increase in international rate expectations. 

Marius Gonsholt Hov, Economist | maho60@handelsbanken.no

Macro Comment Norway — Housing market puts (soft) floor under policy rate

Norges Bank has changed its strategy, which we believe makes further interest rate cuts much less likely. Worries about financial stability and the housing market take centre stage, in practice putting a soft floor under the interest rate, we believe. Before Norges Bank cuts the policy rate any further, we would likely need to see much larger shortfalls in inflation and the real economy than previously. We therefore change our expectation for the policy rate and now expect it to remain at 0.5% for the foreseeable future.

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

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