According to analysts at Rabobank rates have already been hiked this year in Norway and there is strong speculation that the next policy decision on June 20 will bring another move.
Key Quotes
“The arguments in favour of further easing stem from increasing capacity utilisation which, according to the Norges Bank’s May statement, “appears to be rising further”. In line with this, the Bank also judges inflation as being “a little higher” than its target.”
“The most recent release of Norwegian inflation data shows core CPI inflation for May at a weaker than expect 2.3% y/y. This is below the April print of 2.6% y/y and lower than the Norges Bank’s prediction of 2.5% y/y. On the margin it reduced the case for further rate hikes.”
“Since the end of last month Brent crude prices have dropped around 11%. While supply factors had pushed prices higher in the early months of this year, more recent concerns about weaker world growth have weighed on the outlook for oil prices. Given its impact on Norway’s economy, the trajectory of oil prices will likely have a significant impact on how Norges policy plays out in the coming months.”
“Another focus for the Norges Bank is the high levels of debt held by households. The implication of this is that there is the potential for even a small rate hike to have a significant impact on consumer behaviour. The other potential constraint on the hawkishness of the Norges Bank going forward is the relative position of the NOK.”
“Currently the effective exchange rate is relatively soft meaning that some currency strength that could result from a widening in interest rate differentials is unlikely to be a constraint for policy makers. However, this could become a greater consideration in the coming months if market expectations about Fed and ECB easing increase. Assuming the Norges Bank hikes rate on June 20, we expect EUR/NOK to move back to the 9.60 area on a 3 month view.”
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