Chief economist believes Norges Bank should look at interest rate cuts

On Thursday, Norges Bank will present the interest rate verdict, in what earlier this autumn was pointed out as the time for the last interest rate hike in this sequence. Although there were many who doubted that there would be another interest rate hike when it was announced, over the autumn the market began to price a potential interest rate cut in the coming year rather than another interest rate hike.

Now, expectations for wage growth and price growth for the coming year have come down somewhat, which indicates decreasing price pressure and which suggests that Norges Bank will stand by the interest rate hike. There are still things that can surprise, and on Monday the inflation figures for November will be presented.

Believe in lower inflation

In October, Norwegian inflation rose unexpectedly and a lot. After 3.3 per cent in September, CPI growth shot up to 4.0 per cent. Worse was that core inflation increased from 5.7 to 6.0 per cent. On Monday, it is expected that the inflation figures will show clearly lower figures, and on average bank economists expect core inflation just below 5.8 per cent, well below Norges Bank’s forecast.

– This information actually comes too close to the interest rate meeting on Thursday, but is so important that Norges Bank simply has to plan two scenarios, with different reports and press releases – one with an interest rate increase and one without, says chief economist Kyrre M. Knudsen at SpareBank 1 SR- Bank.

– At the same time, it is possible that Norges Bank will eventually become more forward-looking and talk more about inflation prospects than current inflation, as they did previously, and thus place less emphasis on current inflation, says Knutsen, who clarifies that there is great uncertainty around inflation and there has been abnormally large fluctuations from month to month.

The chief economist believes that inflation will come down a little and the same for core inflation.

– That will probably be sufficient for Norges Bank, which three days later will make its interest rate decision, he adds.

Interest rate cut before the summer

If Norges Bank resists the temptation to raise rates once more, history has shown that it takes less than six months from the last rate hike to the first rate cut on average. In that case, it may indicate that Norges Bank will cut the interest rate before the summer.

Statistics Norway (SSB) presented its findings on Friday new forecasts for the Norwegian economy on Friday and they believed that the policy rate will remain at the current level until mid-2024, before it is gradually reduced. An opinion that is partially supported by Knutsen.