Decision Day Looms for a Central Bank Still Contemplating Hikes

(Bloomberg) -- One of the last interest rate hawks could make a stand this week.

Norway’s central bank Governor Oystein Olsen faces a tough call on whether to stick to a plan to raise again and go against a global wave of easing that was kicked off by the U.S. Federal Reserve in July. Three of the six biggest Nordic banks expect Norges Bank to signal a September tightening at a rate decision on Thursday.

Olsen is trying to squeeze in a fourth increase since September last year to cap inflation and steer an economy that has bumped up against capacity amid a boom in investments in its offshore oil industry. Politicians in Scandinavia’s richest nation have helped fuel a long expansion by tapping a record amount of the country’s oil revenue to pay for tax cuts and a boom in infrastructure spending since 2014.

As others are mired in negative rates, Olsen and his colleagues raised their benchmark to 1.25% in June, the third increase in less than a year, and signaled another hike could come in September. Policy makers in Oslo convene for a so-called interim meeting this week and all economists surveyed by Bloomberg expect the bank to keep the key rate unchanged.

Decision Day Looms for a Central Bank Still Contemplating Hikes

While it doesn’t issue a new report or forecasts at an interim meeting, it will after Thursday’s rate decision release a statement that could steer markets should it tweak its message from June that “the policy rate will most likely be increased further in the course of 2019,” with a preference for September.

Key Indicators

Key economic indicators in Norway have been broadly as estimated by Norges Bank, but plunging oil prices and the cooling global outlook could make policy makers wary. But their plan to tighten is being helped by a near record-weak krone, which gives it room to raise rates without endangering exporters.

Here’s what local economists say about the upcoming decision:

DNB senior economist Kyrre Aamdal:

“The economic trends since the June meeting have been mixed, with international factors reducing the probability of a September hike. Domestic economic trends are largely in line with forecasts and should be roughly neutral to the rate assessment. The oil price has fallen, but the NOK has weakened.”

Norway’s largest bank said that an “assessment of the risks supports Norges Bank postponing the next rate hike.”

Nordea senior economist Erik Bruce:

Norges Bank will deliver a “clear signal” for a September hike, he said. “The main news since June that could make Norges Bank adopt a wait-and-see attitude is the increased risk of an escalation of the trade war and a no-deal Brexit.”

Swedbank economist Kjetil Martinsen:

“As long as the domestic economy delivers trend growth and a record weak krone cushions against lower oil price and foreign rates, a clear signal of a hike in September would indeed be the ‘recognizable monetary policy.”’

Handelsbanken chief economist Kari Due-Andresen:

“The big question is whether it will offer a signal that it intends to raise its policy rate in September, or whether it prefers to adopt a wait-and-see approach. We believe the latter is the more likely to happen.”

Danske Bank chief economist Frank Jullum:

“Increasing global risk and a mixed picture domestically are set to prevent an explicit reference to September at this meeting but we expect Norges Bank to keep the tightening bias.”

SEB chief strategist Erica Blomgren Dalsto

“Domestic developments have been broadly as expected, while global prospects have deteriorated further. We expect Norges Bank to guide towards a September hike while hinting on a more cautious wait-and-see approach thereafter. This would be regarded as hawkish by markets.”

©2019 Bloomberg L.P.

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