Norway Poised to Stick With Rate-Hike Timetable: Decision Guide

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Norway's central bank is poised this week to cement its plan for another interest-rate increase in June as part of a probable timetable of quarterly hikes lasting until 2024. 

All economists in a Bloomberg survey expect the Norges Bank to keep its key deposit rate at 0.75% on Thursday, with the focus of investors on whether this interim meeting might reiterate tightening plans or herald an acceleration to five moves in total this year.

If Norges Bank does stick with its existing timetable for quarterly moves, that would contrast with a gear change toward more aggressive action elsewhere. The U.S. Federal Reserve is expected to quicken tightening with a half-point increase on Thursday, while earlier on Wednesday Iceland ramped up too with a 100 basis-point hike. 

Norges Bank's hawkishness predates much of the advanced world, having delivered its first hike since the pandemic already in September. By contrast, the Riksbank in neighboring Sweden only last week completed a U-turn in policy by moving rates above zero. 

In March, Norway's central bank raised its rate for the third time since the onset of the pandemic and flagged a faster timetable for future increases to 2.5% next year. While officials saw a potential for even faster moves “if there are prospects of persistently high inflation,” most analysts don't see evidence of that yet.

“For Norges Bank to hike more than four times per year, they would have to see that the trust in the inflation target was in jeopardy,” said Nordea analyst Dane Cekov. “That would manifest itself if the wage negotiations came in very high, 5 or 6%.”

He reckons wage growth will ultimately range up to 4.5%, which is “not high enough to warrant faster rate hikes” even if market pricing does currently suggest a quicker pace of tightening. 

Norway's core inflation quickened less than estimated in March, with weaker-than-expected economic growth in February also easing pressure for rate hikes. 

Governor Ida Wolden Bache still said last week that underlying inflation will keep accelerating, driven by “high imported goods inflation, limited spare capacity in the Norwegian economy and prospects for rising wage growth.”

“We will keep an eye out for any hints whether double or interim hikes could be on the cards, should inflation dynamics continue to firm ahead,” Swedbank's analysts Kjetil Martinsen, Marlene Skjellet Granerud and Jon Espen Riiser said in a note to investors, reiterating they expect four more hikes this year before the Norges Bank would end its tightening campaign at year-end.

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