The market expects between five and six interest rate cuts during the year. To put it mildly, there is a surplus, writes chief economist Kjetil Olsen at Nordea Markets. He believes in halving within two years, and believes the cuts probably “will not be significant.”
On Thursday, Norges Bank will present its next interest rate decision.
After they surprised and raised the key interest rate to 4.50 per cent in December, both the market and the man on the street have long begun to look forward to lower interest rates.
How much and when are the key questions. In the Norges Bank's pre-Christmas forecast, there is only one rate cut this year, most likely at the last interest rate meeting of the year in December.
The market has moderated a bit recently, but is progressing and has long expected five to six interest rate cuts this year. It seems exaggerated to say the least.
This is how Chief Economist Ketil Olsen presents the big bank's “Economic Outlook” report, which was presented on Wednesday morning.
The market has long priced in several cuts during 2024, but this is unlikely to be the case, Olsen and Nordea Markets believe.
There is a big split among economists on when the first cut will come and how much we will get. In the case below, you can read that 12 out of 20 economists contacted by E24 expect the first rate cut in August, September or December, while the remaining eight already expect a cut in June:
Read on E24+
20 Economic: This is how many interest rate cuts you can get this year
Three reductions are expected by the end of 2025
Nordea Market calculations show that interest rate cuts probably “will not be significant,” the report says.
One should also not be too optimistic about 2025, believes Olsen, pouring cold water on those hoping for more frequent cuts.
We expect only three interest rate cuts in total during 2024 and 2025.
The chief economist justifies this by saying that too many interest rate cuts here at home could increase pressure on the Norwegian economy.
The report states that it does not take many cuts in interest rates to fuel household demand for goods and services, as well as housing prices.
Nordea believes house prices will stabilize or decline as summer approaches, before starting to rise again in the fall.
I think the krone could provide a subsequent interest rate cut
If Norges Bank cuts the amount as expected in the rest of Europe, the krone exchange rate will weaken, Nordea Markets currency strategist Dane Cekov wrote.
– This suggests that the Bank of Norway will be cautious in cutting interest rates and will likely lag behind other central banks.
Activity in the Norwegian economy has stabilized, unemployment has risen slightly from a very low level, and price inflation has peaked and is gradually declining.
Combined with a somewhat stronger krone, this will open the way for modest interest rate cuts from Norges Bank after the summer, Sikov wrote.
Nordea Markets expects the interest rate to reach 4.0 percent at the end of the year, and the euro to reach 11.0 percent against the krone. On Wednesday morning, one euro was trading at 11.40.
Chekov also noted that he is more optimistic about the krone in 2024 than in 2023.
I think the Fed will cut interest rates during the spring
The Bank of Norway went against other central banks when it raised interest rates in December. But when the cuts are implemented on the continent, Norges Bank will likely follow suit gradually, but not immediately, as Nordea Markets believes.
They expect the growth of the US economy to moderate this year, despite the stable record numbers in the markets.
The report confirms that there is no recession on the horizon.
Nordea Markets sees the probability that the Fed will cut interest rates by a total of 1 percentage point during the year as high. It decreased from today's level of 5.25 to 5.50 percent.
At the same time, they see a risk that a cut in interest rates by the US central bank, the Federal Reserve, could give additional impetus to the economy. As unemployment rates fall, this could lead to wages and price growth rising again.
The labor market is tight and the economy is in good shape. Although inflationary pressures have declined, we are not sure whether the US economy needs lower interest rates.
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