Norges Bank unlikely to alter rates on December 13, but maintain clear tightening bias: Danske Bank

The Norges Bank is not expected to adopt any change in its benchmark interest rate at its monetary policy meeting, scheduled to be held on December 13, but with a clear tightening bias, signalling a rate hike in March, according to the latest research report from Danske Bank, despite the recent global turmoil and lower oil prices.

However, growth in the domestic economy continues to be above trend, with capacity utilisation moving higher. As long as these underlying inflation drivers are positive, Norges Bank expects wage and price inflation to pick up, and hence wants to continue the gradual normalisation of monetary policy.

The global growth outlook has become more uncertain since September, but this was also something NB took note of at the monetary policy meeting at the time. In addition, it can be argued that the political risk is actually somewhat lower, with hopes of a trade agreement between China and the United States, movement in EU-Italy budget negotiations, and proposals for a Brexit agreement on the table, the report added.

Nevertheless, global rates have decreased since September. Weighted global rates are 3- 8bp lower for 2019 and 10-15bp lower for 2020-21, than at the cut-off for the September report. In isolation, this should push the rate path marginally downwards in the corresponding period, and the rule of thumb suggests a 50 percent effect.

"An overall review indicates that the interest rate path is likely to be lowered somewhat compared to September, but primarily in 2020 and 2021, when we expect around 10bp lower rates, and around 5bp lower by the end of 2019. If proven correct, the rate path would signal a rate hike in March, a close to 75 percent probability of another hike in 2019 and roughly 40bp higher rates in 2020 and 2021," Danske Bank commented in the report.