The ‘Last Hawk’ May Be About to Deliver Its Final Rate Increase
The ‘Last Hawk’ May Be About to Deliver Its Final Rate Increase
(Bloomberg) -- The central bank of Norway, dubbed by local economists as “the last hawk,” could this week be about to deliver its fourth interest rate increase. It may also be the last in the current tightening cycle.
Norway’s central bank Governor Oystein Olsen signaled as recently as last month that not much has happened to prevent him from sticking to the script at a rate meeting on Thursday. What’s more, oil prices spiked this week, providing a boost to Norway’s fossil-fuel-reliant economy, and the krone is about 4% weaker than its average level over the past five years.
But given the global uncertainties, many economists doubt that Olsen will dare to go against the wave of renewed stimulus led by the U.S. Federal Reserve and the European Central Bank. Fifteen of the 26 economist surveyed by Bloomberg expect an unchanged rate. The rest, including four of the biggest Nordic banks, anticipate a hike to 1.5% on Thursday.
Olsen, who has a stated preference for “leaning against the wind,” is trying to squeeze in a fourth hike since September last year to steer an economy that has bumped up against its capacity limits amid a surge in oil investments. Unlike most of Europe, Norway has also benefited from a generous fiscal policy, with the Conservative-led government tapping a record amount of the nation’s oil wealth over the past years to pay for tax cuts and surging infrastructure spending.
But Norway isn’t immune to waning global momentum. Norges Bank struck a cautious note at an interim meeting in August, warning that deepening trade tensions and uncertainty surrounding Brexit may weigh on domestic growth.
Olsen and his colleagues raised the benchmark to 1.25% in June, the third increase in less than a year. Policy makers in Oslo signaled that another hike could “most likely” come in the course of 2019, with a preference for September.
Here’s what those who predict an increase say:
Nordea senior economist Erik Bruce“Norges Bank will increase its key rate at the meeting on Sept. 19. This is in line with the latest rate path from June and signals from the bank at the in-between meeting in August. The new rate path will be slightly below the path from June. However, we expect the new rate path still to show a slight probability for a rate hike in the period ahead of the September meeting.” |
Swedbank economist Kjetil Martinsen“A final hike to 1.50% should and will most likely be delivered. Norges Bank should continue to put more weight on the domestic economy in the short term, suggesting a September hike is warranted.” |
Danske Bank chief economist Frank Jullum“We expect Norges Bank to raise the key interest rate by 0.25pp to 1.50% at the monetary policy meeting on Sept. 19. This was strongly signaled by Norges Bank in the monetary policy report in June. However, the escalation of the U.S./China trade war and the gridlock in the Brexit negotiations have increased downside risks from the global economy.” |
SEB chief strategist Norway Erica Blomgren Dalsto“We believe rising capacity utilization, inflation near target and financial stability worries will persuade Norges Bank to deliver a final 25bps hike at its upcoming rate decision on Sept. 19. This implies that the key rate will peak at 1.50%, which is close to the estimated neutral nominal key rate.” |
Here’s what those who predict unchanged rates say:
Handelsbanken chief economist Kari Due-Andresen“Global risks have weakened the outlook for Norway’s trading partners, but they have also weakened the NOK exchange rate. In sum, we believe these factors should be neutral to monetary policy. At home, the real economy is performing much as expected, while inflation is running lower than Norges Bank’s forecast. We believe Norges Bank will hold its fire in September, but maintain its forecast for one or two more policy rate hikes. Eventually, we believe Norges Bank will have to call off further hikes as the global gloom weighs on Norway.” |
DNB senior economist Kyrre Aamdal“We expect Norges Bank to hold policy rates unchanged and lower the ratepath at the September meeting. We also expect the rate path to indicate a rate hike toward the end of this year or in 1Q 2020.” |
To contact the reporter on this story: Sveinung Sleire in Oslo at ssleire1@bloomberg.net
To contact the editors responsible for this story: Jonas Bergman at jbergman@bloomberg.net, Tasneem Hanfi Brögger
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