January 27, 2023

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Waiting for Norges Bank interest rate hike – E24

While all Norwegian experts envision a rate break in January, economists at Capital Economics expect central bank chief Ida Waldenbach to raise interest rates another notch on Thursday.

Interest rate: Central Bank Governor Ida Waldenbasch and the Bank of Norway will make a decision on the interest rate on Thursday.
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“We suspect that they will continue to raise the interest rates that they indicated, and that they will raise the main interest rate to three percent,” Jack Allen-Reynolds wrote in an email to E24.

The economist at Capital Economics who covers Europe predicts that the Norges Bank will raise the interest rate at the rate meeting on Thursday. In December, the key interest rate was set at 2.75 percent.

Thus he is among the few economists who now expect a jump in interest rates. According to TDN Direkt, all five Norwegian banks requested by the news agency expect fixed interest rates.

Capital Economics has also excelled in the past. In June, the research firm estimated that Norges Bank would initiate several large additional rate hikes, while other economists had their doubts.

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Since then, Norges Bank has set the interest rate at every rate meeting, including three additional large interest rates of 0.5 percentage point at a time. The January meeting could be the first without a rate hike since May last year.

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Allen-Reynolds notes that Norges Bank gave signals about another rate hike in the first quarter.

– We believe that the development that has occurred since then will cause them to take action next week, rather than waiting, he writes.

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The economist notes that the Norwegian economy is “holding up quite well”, while inflation remains “very strong” and the housing market appears to be “calming down, but not collapsing”.

Allen Reynolds believes that the next rate hike will also be the last for this time. It is estimated that the policy rate will then remain at three percent until 2024.

– We believe that after raising interest rates next week, the central bank will wait to see how tightening monetary policy affects the real economy, he emphasizes.

– There is no rate hike now

The British economist faces opposition from Norwegian experts.

– We don’t think at all that there will be a rise in interest rates now, says chief economist Marius Gunsholt Hoff at Handelsbanken.

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It is believed that the Bank of Norway will wait for the rate hike. Hof points out that Norges Bank’s forecast, the so-called interest rate path, shows the greatest likelihood of this happening at the next meeting in March.

Waiting for unchanged interest rates: Chief Economist Marius Gunsholt Hof at Handelsbanken.

– Now it’s been a short time since the last increase. And Norges could probably use more time now before a new raise, but that’s definitely the plan.

– I think that this meeting will be a stop for the Bank of Norway, and that they will repeat the message of raising new interest rates in the first quarter, but they will target it in March, he says.

The Handelsbanken economist says the latest figures from the Norwegian economy have been “somewhat on the strong side of the Bank of Norway’s forecast, but nothing that would speak of an interest rate hike really now”.

– We stress that Norges Bank has clearly stated that they want to see the effects of what they have already done, says Chief Economist Kjersti Haugland at DNB Markets.

It expects the next rate hike to come in March.

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In May last year, the key interest rate was 0.75 percent. After Norges Bank began sharp rate hikes in June to combat rising rates, it was set at 2.75 per cent – the highest level since 2009.

– They did a pretty good deal on the interest front. Hoagland says the Norwegian economy is interest rate sensitive.

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They want to see how the economy responds to that. She says we believe this consideration has a significant impact on the Bank of Norway.

Kjersti Haugland, Chief Economist at DNB Markets.

Haugland says the job market remains strong. The latest figures from Nav showed the unemployment rate at 1.6 percent, still a historically low level.

– There was a stronger GDP development than the Bank of Norway thought. She says inflation has been more or less what Norges had expected.

Price growth in Norway eased to 5.9 per cent in December. It’s still well above the central bank’s 2 percent target, but is on its way down from higher levels last year.

This is the information we have received in the very short period since the December interest rate meeting. I don’t think that’s enough to get Norges Bank to change plan, says Hoagland.