Norges Bank Raises Rates

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Stockholm (Ekonamik) – As expected, Norges Bank, the central bank of Norway, increased its policy rate from 0.75% to 1% at its March 21st meeting.

According to the press release, “the uncertainty surrounding global developments and the effects of monetary policy suggests a cautious approach to interest rate setting. Overall, the outlook and the balance of risks imply a gradual interest rate increase ahead.”

This bullish outlook is confirmed by the technical projections Norges Bank published in its Monetary Policy Report, As the figure below shows, Norges Bank seems to be moving in exactly the opposite direction to the Fed where FOMC members are becoming distinctively dovish.

“Our current assessment of the outlook and balance of risks suggests that the policy rate will most likely be increased further in the course of the next half-year”, says Norges Bank Governor Øystein Olsen.

Analysts believe that Norges Bank is being too bullish and that slower global growth will dampen the path of interest rates. “Our long held expectation of two rates hikes this year was confirmed by the new rate path. We continue to expect that any planned rate hikes in the coming years will be cancelled. The current policy rate trajectory now only incorporates one more hike in 2020-2022. We expect somewhat slower international growth than Norges Bank. Also, we believe that the central bank’s wage growth expectations remain on the high side. We therefore continue to expect that the policy rate reaches a peak of 1.25 percent in this cycle,” says Halfdan Grangård, Senior Economist at Handelsbanken Capital Markets.

Swedbank agrees with Handelsbanken’s view. “We think the Bank will preserve its cautious approach, and remain optimistic on behalf of the domestic economy this year, hence lifting the rate path slightly in the short-run to signal a third hike in September. Weaker external growth and lower foreign rates result in a downward revision of the lower end of the rate path, by approximately 10 bps. But as more central banks have either postponed or stopped hiking, could Norges Bank do it all by them selves? We think so,” say Kjetil Martinsen and Marlene Skjellet Granerud, Acting Head of Macro Research for Norway and Economist at Swedbank, respectively.

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