Most Hawkish G-10 Central Banker Sees ‘Significant’ Risks

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The governor of Norway’s central bank signaled that a number of risks remain that could affect plans to remove monetary support, amid concerns over slow vaccine rollouts across Europe.

“There is significant uncertainty as regards the health situation, the infection rates and vaccination prospects,” Governor Oystein Olsen said in an interview on Thursday.

He spoke not long after the central bank announced its decision to keep its main interest rate at zero, as expected. The bank also repeated a signal that it will increase rates later this year, which puts Norway in a league of its own in the rich world.

Like other countries, Norway is waiting for enough people to be vaccinated to allow the economy to fully reopen. For now, its immunization program has been disrupted by a March decision to shelve AstraZeneca Plc’s vaccine, amid concerns over the risk of blood clots. Next week, a committee will rule on how Norway would be affected if it also excludes Johnson & Johnson from its inoculation program, as neighboring Denmark did this week.

Subtle Hints?

On Thursday, Norges Bank altered the language in its outlook, dropping the word “substantial” from its assessment of the uncertainties ahead. At Nordea Bank Abp, the biggest lender in the Nordic region, analysts took the omission as a signal that a Norwegian rate hike might come as early as September.

Olsen sought to play down such speculation.

The “rationale for this slight change in the wording” reflects “simply that summer, fall, the second half, is coming closer, compared to early March,” he said.

Uncertainty around the timing of a Norwegian rate hike has coincided with sizable swings in the krone, which was the most volatile G-10 currency in the week through May 7.

What Bloomberg Economics Says...

“We expect a rebound in growth in 2Q will allow the central bank to lift off in December and hike twice in 2022. The key rate should reach 1.5% by the end of 2024.”

--Johanna Jeansson, Nordic economist

Whether Norges Bank raises its main rate in September or December, it remains the most hawkish in the group of 10 countries with the most traded currencies. The European Central Bank is still heavily committed to emergency stimulus and the Riksbank in neighboring Sweden has signaled it won’t move away from its zero rate until 2024.

Olsen said on Thursday that the developments in Norway’s economy don’t warrant a new forecast compared with its view in March. He also said that, despite disruptions, Norway’s vaccine program doesn’t appear to be facing substantial delays. As a result, the bank’s official guidance remains for a rate hike “in the latter half” of 2021, he said.

©2021 Bloomberg L.P.

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