Top Economist in Norway Bets Against Wall Street on Rates

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Investors expecting Norway’s central bank to follow its peers and cut interest rates may be in for a surprise.

Kjersti Haugland, chief economist at Norway’s biggest bank DNB ASA, says she doesn’t expect the fallout of the coronavirus to trigger any Norwegian rate cuts in 2020.

It’s a view that stands out from predictions being made by some of the most powerful banks on Wall Street. Economists at Goldman Sachs Group Inc. expect deep rate cuts this year from the world’s biggest central banks, including the Federal Reserve and the Bank of England. For Norges Bank, they predict 50 basis points of cuts in total. Market pricing also indicates a cut, albeit smaller.

Norges Bank will probably decide “that they have the time to wait and assess the consequences of the virus for the Norwegian economy towards the summer,” Haugland said in an interview.

Read More: Norges Bank Monitoring Corona Risks ‘Very Closely’

There are several reasons why Norway is unlikely to deliver cuts, she says. Thanks to the country’s vast oil wealth, on which it’s built the world’s biggest wealth fund, Norway has long distanced itself from other economies. It never resorted to negative rates or quantitative easing, and the government has pumped substantial amounts of stimulus into the economy, with room for more.

“It’s not obvious that weaker times automatically result in Norges Bank cutting the rate,” Haugland said. What’s more, Norway tends to rely on a weaker currency when markets fall, providing a form of external stimulus that drives inflation higher. So “Norges Bank can just sit still,” she said.

The Norwegians aren’t totally immune to global market shocks, and policy makers were forced to shelve a yearlong hiking cycle in September as trade tensions mounted. Haugland doesn’t see more hikes this year, but says policy makers in Oslo would rather raise rates than cut them.

“The current upward bias from December signals that they would like to get the rate up,” she said.

“At this point, we expect the key policy rate to remain at this level in 2020, but undoubtedly, the risk of rate cuts has increased lately,” Haugland said.

The one scenario in which Norges Bank might cut rates is if Norwegian consumers start spending “markedly” less, Haugland said.

“So the consumption of Norwegian households is very important to monitor,” she said.

To contact the reporter on this story: Jonas Cho Walsgard in Oslo at jchowalsgard@bloomberg.net

To contact the editors responsible for this story: Tasneem Hanfi Brögger at tbrogger@bloomberg.net;Mikael Holter at mholter2@bloomberg.net

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