– Do you want to see that activity actually slows down – E24

The market expects up to five Norwegian interest rate cuts in 2024. Economists believe this is too aggressive.

Norges Bank will again set its interest rate on Thursday. They then also provide their view on the future of economic development, and projections of where they think interest rates will be in the coming years.

The so-called interest rate path was revised upward last September. The Bank of Norway then indicated that the interest rate could remain at 4.5 percent until 2024.

Market players have recently taken a completely different view. They are pricing in up to five 0.25 percentage point cuts over the next year, which would raise interest rates to 4 percent.

Many economists believe this would be an exaggeration.

-I think the market is very aggressive. I don’t think Norges Bank will offer an interest rate path that provides support for today’s market pricing, says Erica D’Alsto, chief strategist at SEB.

Cut interest rates in the summer at the earliest

Even if five rate cuts is too many, both D’Alsto and Swedbank’s Chief Economist Kjetil Martinsen expect interest rates to fall in 2024.

SEB expects a rate cut in June at the earliest, but expects in the main scenario that the first cut will have to wait until September. D’Alsto believes the interest rate will be cut again in December.

– Today’s interest rate is tightening for the economy. Norges Bank now wants to see that activity actually slows as shown, so that it can be assured that inflation is on the way down, D’Alsto says.

Swedbank’s Martinsen says his best guess is the first cut in June, before two further downward adjustments come after the summer. But he is also open to the possibility that Norges Bank might want to hold back for longer, for example coming up with a double rate cut in the autumn.

– Central banks will be cautious. Interest rates will fall toward a more normal level in the coming years, Martinsen says, but the question is how quickly and what the normal level is now.

– Salary settlement will be very important

Price growth, the krone exchange rate, wage growth, unemployment, and not least the outlook for the Norwegian economy, are among the key factors for Norges Bank, according to economists.

There are many arguments for the Bank of Norway to keep interest rates higher for longer, says Martinsen.

Both D’Alsto and Martinsen highlight the spring payroll settlement as a key point. They believe Norges Bank may be interested in seeing the results of wage negotiations before they cut interest rates. The amount of money people get from salary increases naturally affects consumption, price growth, and the economy in general.

– Salary settlement will be very important. There are examples where things backfired, says Martensen, and points to 2002 as such.

-The interest rate was then thought to have reached its peak, before a solid salary settlement could be obtained.

-He thinks everyone is the same

Increased market confidence in interest rate cuts in Norway is largely linked to developments elsewhere in the world.

Although price inflation fell in the United States and the Eurozone, it did not fall to the same extent as in Norway. Core inflationCore inflationNorwegian core inflation measures price growth excluding energy goods and tax changes., which is what Norges Bank looks at more than others, as it reached 5.8 percent. This is well above the 2 percent target.

This is where the weak krone exchange rate comes into play. Imported goods remain more expensive and cause inflation to fall more slowly.

– What happened in the market is that interest rate cuts began to be priced in, especially from major central banks Nourish itNourish itThe US central bank is called the Federal Reserve, and is often simply called the Fed And EspEspThe European Central Bank, abbreviated ECB, sets interest rates in the eurozone. The market believes that all central banks are the same, and prices interest rate cuts from everyone, Martinsen says.

Lower interest rate expectations in the US and the Eurozone are also linked to overall economic development, as well as rising prices. There were also signals from central bank leaders in both countries that were interpreted as being more cautious.

Few believe in a new renaissance

Since the last interest rate meeting in November, both economists and the market have become more certain that the interest rate will now remain calm in December. Most economists at major Norwegian banks and brokerage firms believe the interest rate will remain at 4.25 percent this time, with some exceptions.

The slowdown in the Norwegian economy and weak growth prospects have been highlighted as important reasons. For example, companies in Norges Bank’s regional network expect unchanged activity in the fourth quarter, and a 0.3 percent decline in the first quarter of 2024.

– We expect that the Bank of Norway will not raise interest rates, but we believe that they will indicate very clearly that the battle against inflation is not over yet, says Martinsen.

At its November meeting, Norges Bank announced that a rate hike was likely in December. Central Bank Governor Ida Wolden Bache, meanwhile, said interest rates could be kept calm if they became more certain that the underlying price increase was on its way down.

Welden Bash stressed that any increase will depend on economic developments.

If the cooling does not continue in the future, the peak of interest rates may still be ahead, notes Dalstø at SEB.

– I think Norges Bank is of the view that if you don’t weather the slowdown, you could raise interest rates at the beginning of next year instead.