January 28, 2023

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Chief Economist ahead of Norges Bank interest rate meeting: Waiting for new signals about interest rate peaks

– I am quite confident that the Bank of Norway will keep the interest rate unchanged this time. It will align with signals from the previous interest rate meeting, wrote chief economist Kerry M. Knudsen at Sparebank 1 SR-Bank.

Sparebank1 SR-Bank chief economist Kerry Knudsen does not think the key interest rate will change on Thursday.

Sparebank1 SR-Bank chief economist Kerry Knudsen does not think the key interest rate will change on Thursday. (Photo: Thomas Alf Larsen)

Next Thursday, the stage is set for a new interest rate meeting. In advance, the majority expects that this time the Bank of Norway will keep the main interest rate unchanged.

– There is greater tension related to whether the Bank of Norway will issue new signals about the interest rate outlook. At the December interest rate meeting, they announced the next rate hike in March. I believe this will happen, Knudsen wrote, because there were no unexpected events or statements.

Kjersti Haugland, Chief Economist at DNB Markets, agrees.

New figures ahead of the weekend showed that the Norwegian economy grew by 0.2 percent in November, measured by gross national product (GNP) in mainland Norway. It’s been a month and a half since November was rounded off. Since then, the Bank of Norway has raised its main interest rate again, up 0.25 percentage points in December to 2.75 percent.

DNB's Kjersti Haugland believes peak interest rates could be higher than three percent.

DNB’s Kjersti Haugland believes peak interest rates could be higher than three percent. (Photo: Michaela Berg)

Ahead of the weekend, Haugland told DN that she doesn’t think Norges Bank will be surprised by the numbers that will actually raise interest rates next week, as he said he wanted to see the impact of what he had done and it would be a while before you saw it in the numbers.

– The numbers we’ve seen so far suggest that peak interest rates could be higher than three percent, Hoagland said.

However, Knudsen believes the peak here at home will be reached in March, at 3 per cent, rather than in June as had been expected.

Norway’s economy has blanketed several months with historically low unemployment, high labor force participation, and continued increased activity in industry. Inflation figures for December showed that the annual increase in prices in December eased to 5.9 percent, compared to 6.5 percent in November.

Central banks around the world are now raising interest rates to bring down inflation.

Europe can pass Norway

Knudsen thinks it is particularly interesting to follow developments in Europe. The European Central Bank has become more aggressive in setting interest rates.

– They started late with interest rate jumps, but this spring they may actually exceed the interest rate level in Norway. We have not experienced that before, the European key interest rate is higher than the Norwegian interest rate, Knudsen wrote.

Knudsen wrote that high inflationary pressure in Europe means that this will happen quickly, and that the European Central Bank will have to raise interest rates slightly. It is believed that the main interest rate will end at 3.5 per cent before the summer.

– To some extent, there is a certain risk that high inflation figures in Europe will weaken the krone, Knudsen writes.

Results are just around the corner

While macroeconomists anxiously await the Norges Bank rate meeting, Director Christian Tonal at Alfred Berg is getting very excited about the results season which is just around the corner.

It will be the hour of truth. The fear is that the overall economic downturn will affect corporate earnings. The macro numbers we sit on are often delayed, so it’s important to listen to what companies have to say, says Tonal.

Christian Tonal in Alfred Berg is most excited about the results season.

Christian Tonal in Alfred Berg is most excited about the results season. (Photo: Elaine Holland)

Heavyweights such as Equinor, DNB and Yara are among the companies that are pinning the most excitement. Equinor and Yara both report for the fourth quarter on February 8, the next day DNB follows with its report. Then you will get an answer as to how 2022 will turn out for them.

It is somewhat accepted that business is going strong. What you want to monitor is whether or not they are reporting increasing losses. For DNB, this applies to both the corporate and personal sectors. If it doesn’t report any increasing signs of losses, that’s an important signal, because it says a lot about people’s finances, Tonal says.

As for the 2023 stock exchange, Tunal is optimistic about the financial sector.

– Simply because banks are the only sector that makes more money from increasing interest rates, so the development that occurred in 2022 is in favor of banks, as long as losses remain low, says Tonal.

– you will struggle

Formue’s chief strategist Christian Lee believes analyst estimates are still too optimistic.

With the monetary policy of Western economies curbed, as well as lower inflation, many companies will struggle to sustain their sales growth. In addition, continued rising wages and capital costs will put pressure on profit margins, Lee says.

Formue's chief strategist Christian Lee says results season certainly has the potential to influence market development.

Formue’s chief strategist Christian Lee says results season certainly has the potential to influence market development. (Photo: Oyvind Elfsborg)

Lee says it is not out of the question that 2022 will be the first phase of a longer market. 2022 gave us inflation and interest rate shocks, but the economy has been doing relatively well.

– 2023 may lead to lower inflation and stable interest rates, but ultimately with weaker economies reducing profits and increasing defaults in credit markets. Instead, inflation remains very high with a subsequent rise in market interest rates. In any case, we can have a new year with big waves in the financial markets, he says to me.(Conditions)Copyright Dagens Næringsliv AS and/or our suppliers. We’d like you to share our statuses using links that lead directly to our pages. Reproduction or other use of all or part of the Content may be made only with written permission or as permitted by law. For additional terms look here.

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