– The high wage growth contributes to higher inflation, states Chief Economist Marius Gonsholt Hov at Handelsbanken to NTB
Admittedly, it is not the wage settlement alone that makes Norges Bank reconsider when the interest rate forecast is to be updated, but a combination of wages, the krone exchange rate, interest rate expectations and the situation in the Norwegian economy, according to the chief economist.
Norges Bank’s policy rate has been at 4.5 per cent since the last increase in January. This implies a mortgage interest rate of around 6 per cent.
Hov emphasizes that in any case there will be no changes to the key interest rate when the central bank’s interest rate committee holds its meeting this week. The meeting is a so-called interim meeting, where there will be no new forecasts for monetary policy and the Norwegian economy. The Monetary Policy Report from March still applies.
– This will probably take time. Norges Bank’s current forecast indicates that they envisage an interest rate cut in the autumn, most likely in September. But now I think we are talking in December at the earliest, with the possibility of the interest rate cut being pushed all the way to 2025, says Hov to NTB.
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His expectations are echoed in an apparently widespread attitude among economists. While a relatively short time ago there was optimistic talk of up to several cuts already this year, most are now aiming towards the end of the year and into next year in search of lower interest rates.
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Salary, currency and economy
Admittedly, inflation has come down faster than Norges Bank expected in March, which is pulling in the direction of a lower interest rate path and faster interest rate cuts. But at the same time, there have been several new developments that pull rent in the opposite direction, the economists point out:
* The krone exchange rate has weakened further and is now lower than what Norges Bank envisioned in the March report. Signals that can be interpreted as passivity from the central bank can contribute to further weakening of the krone.
* The situation in the Norwegian economy is unexpectedly strong and the outlook better than expected. We have withstood the interest rate increases well, unemployment is still low, and private consumption is expected to pick up.
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* Expectations of interest rate cuts by trading partners, especially the US, have moderated. The market has priced in interest rate cuts in September and well on the way in December as well.
* The wage settlement has a framework of 5.2 per cent – well above the estimate by Norges Bank in March of 4.9 per cent.
– It is the sum of these factors that causes the interest rate cut to be postponed. But the contribution from the wage settlement also contributes, in isolation, to pushing up interest rate expectations. The parties to the settlement cannot say anything other than that they believe this does not affect interest rates, but the difference between the framework and the central bank’s estimate is large enough for it to have an effect on inflation in a situation where it is already high, Hov points out.
Waiting boring meeting
– If the interest rate committee had made new forecasts now, they would clearly show that there will be no cut in September. But they will probably only repeat the conclusion from March that the interest rate will remain at today’s level “for quite some time” in the future. In that sense, this will be a rather boring meeting, says Nordea Markets strategist Dane Cekov to NTB.
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The most exciting thing about central bank governor Ida Wolden Bache’s announcement on Friday is what she says and how she expresses herself at the press conference, he believes. Statements she made to NRK recently that “we have received a lot of new information since the last time,” are hints that the interest rate path from March no longer applies, and that interest rates will stay up longer than signaled in March.
Major global trends such as deglobalisation, rearmament and home flagging help to keep activity and employment high. Thus, there is considerable inflationary pressure going forward as well, at the same time as there is pressure on the Norwegian krone, according to chief economist Elisabeth Holvik at Sparebank 1.
– Overall, this means that Norges Bank will probably not be able to lower the interest rate this year, and that we cannot rule out that there may be a need for a further interest rate increase if other countries raise interest rates, she tells NTB.
Senior economist Kyrre Aamdal at DNB Markets expects the central bank to repeat the signals it gave after the March meeting, but believes it will downplay the possibility of cuts in September.
