Norges Bank hikes interest rate by 25 bps, likely to hike again in June and December

Norges Bank hiked its policy rate by 25 basis points to 1 percent from 0.75 percent today, as was widely expected. The rate path was adjusted upwards, as domestic factors, including the oil price and NOK, more than countered the negative impacts of global growth and rates.

As Norges Bank evidently underpins the view on the relative performance of the economy, the Norges Bank is likely to hike rates again in June, and deliver another rate hike in December, according to a Danske Bank research report.

The Executive Board stated that their current assessment of the outlook and balance of risks suggests that ‘the policy rate will most likely be increased further in the course of the next half-year.'

The Monetary Policy Report showed that the rate path published was adjusted upwards until the start of 2021, and then downwards. Specifically, the rate path shows that the next hike in the rates might come in June, and that a third hike this year has an over 50 percent probability. Moreover, the rate path hints at a slightly more than one hike in 2021 and flattens around 1.75 percent.

The factors impacting the rate path were widely consistent with expectations. Global risks and global forward rates pushed the rate path downwards. Surprisingly, a softer currency, a moderately higher oil price and stronger domestic growth more than offset these impacts. Nevertheless, the main takeaway from this meeting is that the strength of the economy speaks for a gradual normalization of rates in spite of the global softness, said Danske Bank.

“We now expect NB to hike rates again in June, and deliver another rate hike in December, taking the policy rates to 1.50  percent at the end of 2019”, added Danske Bank.