The American economy is going so fast. This is good news for the US economy, but not for the interest rate path. On Friday this week, smoking fresh inflation figures for the USA will be presented.
The Norwegian interest rate level is affected by what happens internationally. When inflation in the USA is high, you can thus import price growth into Norway through trade. At the same time, the krone exchange rate can be strongly affected if Norges Bank lowers interest rates before other important economies.
Chief economist Kyrre Knudsen at Sparebank 1 SR-Bank has taken a look at what history and the figures show, and tells what he thinks Norway will do if the US and Europe go in different directions.
– I prefer that Norges Bank can cut interest rates even if the US delays, as long as Sweden and Europe do so. But it will depend on inflation in Norway coming down, and the krone exchange rate not being on the weak side.
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Affects Norwegian interest rates
– In the same way as in Norway, it is inflation in the USA that in reality controls the interest rate. The interest rate in the USA is the most important in the world and affects interest rates in all countries, including Norway. Inflation in the US is therefore important for Norway because it affects Norwegian interest rates, says Knudsen to Nettavisen.
He further explains that the USA has the same inflation target as Norway at two per cent.
– The US interest rate affects Norway and almost all other markets and economies in the world quite a lot. The American interest rate controls the dollar exchange rate, which in turn directly affects the Norwegian krone exchange rate.
It happens when you import or export goods and services, but also when trading shares.
– Much more capital flows between national borders than we normally think.
– In all calculations
– The American interest rate is so important that it affects interest rates in most countries, including Norway. Developments in the US are therefore important for the interest rate outlook in Norway.
At the same time, everyone’ follows the American central bank (Federal Reserve, Fed) because they are the world’s largest economy.
– No one has a greater influence on the financial markets than the US central bank. The US interest rate is a reference interest rate for most central banks. Therefore, what the Fed does is included in practically every calculation in the world, explains Knudsen.
He goes on to say that real changes, but also rumours, signals and speeches from the Fed, affect the markets directly.
– Therefore, we can say that when Fed chief Jerome Powell sneezes, Norges Bank catches a cold.
– Would prefer that both cut first
In a report on Wednesday, chief strategist Dane Cekov and chief economist Kjetil Olsen in Nordea Markets wrote that at the start of the year, it was believed that the US central bank was going to cut the key interest rate six times this year from March.
– After three months of inflation figures that have been higher than expected, there are now barely two interest rate cuts in the US this year.
Knudsen says that both the US and the Eurozone economies are incredibly important to Norway.
– I think Norges Bank would prefer that both economies start their cuts before we get started.
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Euro is more important than dollar
The chief economist explains that the I44 system shows that the euro is far more important to the krone than the dollar.
– In simple terms, I44 is a model that calculates how much the krone is affected by other economies (how much of Norwegian imports come from these countries), and it specifies a percentage to measure this.
The euro is 33.3 percent weighted, as it says. At the same time, the dollar is only 6.5 percent weighted.
According to an overview, even the Chinese yen (12.8 percent) and the Swedish krona (13.1 percent) have higher scores than the dollar.
Tags: Interest rate USA Friday fate numbers arrive determine interest rate
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