Norges Bank hikes interest rate by 25 bps, hints at another hike in September

The Norwegian central bank, Norges Bank, hiked the interest rates today and imply that it might tighten the monetary policy further. As was anticipated, Norges Bank hiked the key rate to 1.25 percent. The central bank lifted the rate path and imply that the next hike most likely will be in September. The new rate path reads 1.45 in the fourth quarter 2019 that gives a September hike 80 percent probability, noted Nordea Bank in a research report.

Following a September hike the new rate path increases very gradually. The end point of 2020 is 1.63 that imply something like 50 percent probability of a hike in 2020.

“That Norges Bank lifts its forecast for rates in 2019 despite the change in view both in ECB and Fed is a surprise to many and today’s rate path is clearly on the hawkish side to the market. Strong domestic figures and a strong oil investment and a weaker NOK is pulling the path up”, stated Nordea Bank.

The path is slightly lower in 2020 than in the March report suggesting a bit above 50 percent probability for a hike also next year. Norges Bank cites the increased international uncertainty as a reason for moving more gradually in 2020 than its usual reaction function indicates.

The development in the summer might be important for when Norges Bank will hike next. With no deterioration in the international scenario/increased uncertainty connected to the trade war and domestic figures in line with expectation Norges Bank will probably signal a next hike in September at the August meeting, added Nordea Bank.