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The Norges Bank is not expected to adopt any changes in the policy rate at the upcoming monetary policy meeting on May 9, but may update its earlier guidance on a rate hike within six months of March this year, according to the latest research report from DNB Markets.
The central bank had raised the policy rates at the meeting in March and guided for a rate hike within the next half-year. The rate path indicated probabilities between 20 percent and 80 percent for a rate hike in June.
The economic trends since the March meeting have been mixed, with international factors reducing the probability of a June hike. Domestic economic trends are largely in line with forecasts and should be neutral to the rate assessment.
Higher oil price, the NOK trend and higher-than-expected inflation in March support a rate hike in June. Norges Bank earlier stated "it may be appropriate to assess the effects of a first rate hike before raising the key policy rate further".
"We expect Norges Bank will be cautious and guide for a rate hike after the June meeting," the report further commented.
Short-term indicators for Norwegian economic activity have been mixed since its last meeting. Registered unemployment has fallen further and is below Norges Bank’s forecast. Retail sales recovered in March and cars sales spiked the same month.
On the other hand, manufacturing production has been weak and the PMI has fallen, indicating negative effects from abroad. The February figures for Mainland GDP showed a decline and indicated that Norges Bank’s Q1 forecast may be a little high.
Meanwhile, in the Executive Board’s assessment in the March monetary policy report, the Board stated: "The uncertainty surrounding global developments and the effects of monetary policy suggests a cautious approach to interest rate setting. Overall, the outlook and the balance of risks imply a gradual interest rate increase ahead." Previously the Board has stated "it may be appropriate to assess the effects of a first rate hike before raising the key policy rate further". This is an argument for expecting Norges Bank to hike in September rather than June.
