Norges Bank likely to hike rates in September 2018, and March and September 2019 – DNB Bank

The softness recorded recently in the Norwegian krone has raised question whether the central bank will hike the policy rate both in September and in December, leaving the policy rate doubled by the year-end, noted DNB Bank in a research report.

Even if a mechanical calculation based on Norges Bank’s interest rate account from earlier reports might underpin such an outcome, it is doubtful that the central bank will change its plan of moving more gradually. There are several reasons for this. The pass-through from the NOK is believed to the rate path would be limited, as the latest softness is expected to be seen as temporary, stated DNB Bank.

Also, there are no signs of overheating in the Norwegian economy, which provides the Norges Bank little reason to rush. Furthermore, the low interest rate level and high level of household debt suggest considerable uncertainty regarding the impacts of monetary policy. Thus, Norges Bank is expected to want some time to assess the impacts of the September hike before hiking further. Moreover, a dovish ECB limits the Norwegian central bank’s room to manoeuvre, and increased uncertainty related to the U.S.-China trade war also speaks in favour of caution.

“We continue to expect hikes in September 2018, and March and September 2019. We also expect two more hikes in 2020”, added DNB Bank.