Norway’s Central Bank May Give Clues on Post-Covid Rate Hike


A central bank on Europe’s northern fringe may be about to provide a glimpse into how soon a new cycle of monetary policy tightening may start in a post-pandemic world.

Investors will scour Norges Bank’s outlook on Thursday for signs that Norway may lead the Group of 10 currency sphere in raising rates. All economists surveyed by Bloomberg expect policy makers to keep the benchmark interest rate unchanged at 0% at their final rate-setting meeting of 2020.

The central bank in September signaled it would raise borrowing costs toward the end of 2022, disappointing some market participants wagering the bank would point to an earlier tightening.

Norway’s Central Bank May Give Clues on Post-Covid Rate Hike

“Norges Bank will have to balance short-term weakness vs. long-term optimism when deciding on its new rate path,” SEB strategists Erica Blomgren Dalsto and Karl Steiner said in a note. “We expect relatively small changes to the rate path in a hawkish direction, implying no hiking signals for 2021 but a slight steepening of the path thereafter.”

What Bloomberg’s Economists Say...

“Governor Oystein Olsen, whose mandate also includes financial stability, has flagged rate increases from late 2022. We expect a liftoff sooner than that, although Thursday is not the time for policy makers to turn markedly more hawkish.” --Johanna Jeansson. Read her NORWAY PREVIEW

Unlike the European Central Bank, which unveiled an expansion of its bond-buying program last week, or its Swedish peer, the Riksbank, Norges Bank does not have to backstop the fiscal response to the pandemic. It’s the only country in Scandinavia never to have tried unconventional measures like negative rates, and Olsen has repeatedly made clear he’s keen to avoid the policy.

The richest Nordic economy faces a milder recession than most other countries struggling with the Covid-19 crisis, thanks in part to an effective lockdown strategy and record government stimulus bankrolled by its $1.2 trillion sovereign wealth fund.

While economic growth for October offered a positive surprise by bringing gross domestic product to just 1.5% below its pre-pandemic level, the subsequent tightening of restrictions due to a second wave of the virus are seen weighing on short-term economic forecasts. The promise of a vaccine and a robust growth in house prices may add pressure on the central bank to anticipate planned rate increases, Magne Ostnor, a strategist with DNB ASA, said in a note.

“However, Norges Bank may have a hard time surprising on the hawkish side,” Ostnor said, citing the fact that markets have already priced in an almost 50% chance of an interest rate hike in 2021. “Thus, the balance of risks seems to be skewed toward a dovish surprise.”

Norway has registered an average of 96 cases of Covid-19 per 100,000 inhabitants over the past 14 days, down 25% from a fortnight ago, and well below neighboring Sweden’s 623 per 100,000, according to World Health Organization data.

©2020 Bloomberg L.P.

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