Chief economist Marius Gonsholt Hov believes Norges Bank may risk krone trouble. He gives three reasons for the gloomy outlook.
Less than 20 minutes ago
The Handelsbanken economist has a clear recommendation for Norges Bank before they hold an interest rate meeting on Friday next week.
– According to all indications, the interest rate will remain at rest. But Norges Bank must at the same time tighten its rhetoric. According to the current interest rate path from March, there is a five to ten percent probability of another interest rate hike in June. But that probability has now increased, he writes in a report on Thursday.
– If Norges Bank should continue to insist that the first cut will most likely come in September, they will risk having the krone exchange rate – which is already about two per cent weaker than estimated – even more against them. Norges Bank probably doesn’t have many other options than to appear hawkish next week, the economist continues.
Hov says to E24 that there is now a certain probability that there will be no interest rate cut in 2024, and that there are three reasons in particular why he is making these statements:
1.
– Expectations for interest rate cuts among Norway’s trading partners, and especially in the USA, are being pushed out in time. It also pushes expectations for interest rate cuts in Norway.
Thursday also saw the news that the US economy grew by 1.6 per cent in the first quarter, which sends expectations of interest rate cuts in the US even further down.
– This is bad news considering the timing of interest rate cuts both in the US and here at home, says Hov.
2.
– Despite the fact that the interest rate cuts in Norway will be delayed, the krone exchange rate is weaker than what Norges Bank has envisaged. So the risk premium for the krone has increased, and investors demand a greater risk premium to invest in the krone, says Hov.
Therefore, he believes that Norges Bank must tread carefully next Friday, so that the krone exchange rate does not fall even further below expectations.
3.
The third factor Hov points to is inflation.
– The salary settlement ended higher than Norges Bank expected. This will mean that inflation can stay higher for longer. And again make the interest rate cuts last longer, says Hov.
– It is important to point out that Norges Bank has so far signaled one cut for the autumn, probably in September. There is now very little that can go wrong before this has to be pushed. And we believe that we are there now. In fact, perhaps to such an extent that there will be no rate cut this year at all.
Several expect later cuts
Hov and Handelsbanken are not alone in waiting for a postponed interest rate cut:
